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Volume 7 No. 149
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U.K.'s William Hill Rejects $4.7B Takeover Offer From Rank Group, 888 Holdings

William Hill "has rejected an audacious consolidation attempt" by two of its smaller rivals, dismissing a "complex" £3.6B ($4.7B) bid from Rank Group and 888 Holdings as "highly opportunistic," according to Elder, McClean & Massoudi of the FINANCIAL TIMES. The high-street bookmaker, "which missed out on a feverish round of consolidation last year," said that the 364p cash-and-stock offer "substantially undervalues" the company. Shares in William Hill rose on Tuesday after a report that Rank and 888 had teamed up to submit the offer, "which set out cost savings to lift the value of the proposal to 408p a share." But William Hill's board "unanimously rejected" the offer, saying it posed "substantial risk" for shareholders. It said that the proposed takeover involved "a highly complicated three-way combination at a low premium," with the merged company "assuming approximately" £2.2B ($2.86B) of leverage in order to fund the deal. Analysts said that investors in William Hill "would be unconvinced by the offer." David Jennings of Davy Research said, "A bid of 408p would be a decent premium, but we don't see a rationale for Rank and William Hill coming together" (FT, 8/9). The BBC reported William Hill shares have risen 22% to 334p since 888 said last month that it was "considering a joint bid with Rank." The bid would mean 888 taking over Rank, "with the newly formed company then buying William Hill." Rank and 888 argue that their business plan "would increase the company's value to up to 408p a share" -- or £3.6B. William Hill said that it was already seeing "a turnaround in its own online business," and while a merger would give it access to 888's offshore markets it replied that it was "already seeing growth of 12% in its Australia operation and 49% in operating profits" in the U.S. Warwick Business School Professor of Practice John Colley said that the bid "looks particularly opportunist as William Hill have lost their chief executive James Henderson after two years of disappointing performance with the shares at a lowly 336p compared with the 364p offer." He said, "The industry is consolidating rapidly and William Hill, Rank and 888 will be part of that one way or another. For this reason, Rank and 888 should also watch out" (BBC, 8/9). BLOOMBERG's Paul Jarvis reported Investec analyst Alistair Ross said that the bidders "are likely to come back with an increased offer, though may lack the financial resources to pay what William Hill would find acceptable." Ross: "I don’t think they will have the cash or the clout to get this deal done." He estimated that the suitors would need to pay about 400p a share to succeed. The proposal from 888 and Rank comprises 199p a share in cash and 0.725 shares in the bidding company (BLOOMBERG, 8/9).