LONDON (Alliance News) - 888 Holdings PLC on Friday said it has struck a deal to acquire FTSE 250-listed online gaming rival Bwin.Party Digital Entertainment PLC in cash and shares, seemingly trumping the previous offer made for Bwin.Party by AIM-listed GVC Holdings PLC.
888 shares were up 8.0% to 172.75 pence on Friday, the best performer in the FTSE All-Share, while Bwin.Party shares were up 0.3% to 103.20p. GVC shares were trading higher, up 0.8% to 446.20p.
888 has been competing with GVC to acquire Bwin.Party since May, when 888 entered the fray after GVC had already made its intentions clear. GVC made a bid for Bwin.Party last week which valued the company at 110p per share, or GBP906.5 million. Its offer is being co-financed with Canadian gaming company Amaya Gaming Inc.
The 888 offer is lower than GVC's, valuing Bwin.Party at a total of GBP898.3 million. The consideration comprises 39.45p in cash and 0.404 of a new 888 share per Bwin.Party share. 888 said the offer values Bwin.Party shares at 104.09p, a 16% premium to their closing price on May 14, when Bwin.Party first entered talks with its potential suitors.
Bwin.Party said it had decided to go with 888's offer as the bid from GVC, which though containing "many attractive features", also carried "additional execution risks".
Bwin.Party said its "directors have concluded, after further work with GVC and its advisers and after careful consideration, that 888's offer provides a higher degree of certainty for Bwin.Party shareholders and that GVC's modest incremental premium to 888's offer is not sufficient for the Bwin.Party board to recommend GVC's proposal over 888's offer."
GVC is a significantly smaller company than Bwin.Party, with a market capitalisation of only GBP272.8 million compared to Bwin.Party's GBP843.5 million. 888's market capitalisation is 598.5 million, still smaller that Bwin.Party but also substantially larger than GVC.
The offer from 888 will include a Mix and Match Facility, so that Bwin.Party shareholders will be able to elect to vary the proportions of cash and new 888 Shares they receive, subject to offsetting elections made by other Bwin.Party shareholder, 888 said.
The boards of both companies think the deal will be "transformational" for the two companies and think the combined business will benefit from significantly enhanced scale, a stronger product offering and significant cost and revenue synergies. The pair expect that these cost synergies will amount to no less than USD70 million per year before tax by the end of the 2018 financial year. 888 expects the deal to be earnings enhancing in the first year of ownership.
Those synergies could, however, be affected by the so-called 'Studios' strategy which 888 has proposed, which would involve building up Bwin.Party's technology business. Subject to 888's board determining that this Studios business had reached a critical mass and assuming it presents a robust business case, the combined company will establish the Studios business-to-business unit as a standalone unit and may consider spinning it off into a separate listed vehicle, with its shares to be distributed to existing shareholders in the combined business.
This would happen once the appropriate service level agreements with the remaining business have been finalised and after the integration of the business-to-consumer arm of Bwin.Party has been fully completed.
Should this strategy be approved by the combined company and ultimately implemented, this would reduce some of the anticipated cost synergies. But 888 said this will only happen should any shortfall in the synergies be more than offset by the revenues gained from making such a move.
But the two companies said the deal will create a stronger combined business, with 56% of its total revenue generated from nationally regulated and taxed markets in Europe and the US, including leading positions in the Belgian, Danish, German, Italian, Spanish and UK markets.
888 said it has been proposed that Liz Catchpole, an independent non-executive director at Bwin.Party, and Martin Weigold, Bwin.Party's chief financial officer, will join the board of the combined company. Catchpole will be an independent non-executive director, while Weigold will be a non-executive director. Norbert Teufelberger, the chief executive of Bwin.Party, will provide consultancy services on the combined businesses' sportsbook operations.
"This is a transformational opportunity for 888 in the consolidating online gaming industry, which is expected to grow significantly over the coming years. The enlarged group will benefit from significantly enhanced scale, an improved product offering as well as significant cost and revenue synergies," said 888 Executive Chairman Brian Mattingley.
"A year ago we set out to explore industry consolidation opportunities whilst working to improve our core business. We have made substantial progress on both counts and our announcement today marks the first step in a new phase in our short history. Bringing our two groups together will generate substantial financial synergies for the benefit of both sets of shareholders and create a strong player with the breadth of product, brands and geographic coverage to grow faster than either business would be able to achieve stand-alone," said Bwin.Party Chairman Philip Yea.
The deal with 888 ends Bwin.Party's long time as a potential takeover candidate. The company first said it had received several approaches about possible business combinations in November last year, when Amaya, GVC's bidding partner, was thought to be showing an interest in acquiring the company.
Then, in March this year, Bwin.Party Chairman Yea said the company had received a number of indicative proposals and had entered talks with the companies that had tabled offers. That culminated in GVC and 888 both declaring their interest in acquiring Bwin.Party in May.
888 itself also had been the subject of takeover speculation as mergers and acquisition activity ramps up in the UK gambling sector. The merger interest has developed as operators take a hit from new gambling taxes in the UK and a margin squeeze from a need to invest in marketing and technology to keep up with the growing online gambling market.
In February, 888 entered talks with William Hill PLC, the UK's largest listed gambling company by market capitalisation, which is understood also to have run the rule over Bwin.Party. The talks between 888 and William Hill ended, however, after 888 was unable to secure the support of its major shareholder.
Then in June, FTSE 250-listed Ladbrokes PLC entered takeover talks with unlisted Gala Coral Group Ltd. The talks involve a proposed merger of Ladbrokes with the Coral Retail, Eurobet Retail, and Gala Coral's Online businesses. Gala Coral Group also includes the Gala Bingo brand, but did not mention this as part of the talks. Augustin Eden, an Accendo Markets analyst, said at the time that the deal may allow Gala Coral to sell the bingo business.
The merger activity comes at a time which analysts broadly believe to be positive for bookmakers from a political perspective, after the Conservatives won a majority in the General Election in May. UBS, in a note published in May, said the Tory win should prove positive for bookmakers given John Whittingdale, the Culture Secretary, has previously given his backing to betting shops, disputing the notion they are a "blight on the high street".
As the election results flowed in on May 8, shares in bookmakers surged higher amid optimism that a Tory government will present substantially less of a regulatory threat than would have been posed by a Labour government. The Labour manifesto had included plans to give local authorities the power to reduce or ban fixed-odds betting machines from betting shops.
On Thursday, analyst predictions of a more accommodating political environment for the gambling industry was borne out after the UK government rejected a bid by 93 councils in England and Wales to have the maximum bet on fixed-odds betting terminals significant reduced.
The councils were calling for the highest stake allowed on the betting machines to be cut from GBP100 to GBP2, but the government said it has already introduced stronger controls on this part of the market.
By Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance
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