Analysts are saying that a possible merger between the UK’s William Hill and Canada’s Amaya Inc. is a longshot, despite acknowledging that a merger could have benefits for both sides.
The key issue is whether William Hill would want to take on the debt the merger would create—a key reason the bookmaker rejected a recent merger deal with 888 Holdings and The Rank Group.
Writing for Bloomberg News, columnist Chris Hughes said the likely answer is no.
According to Hughes, both William Hill and Amaya are seen as struggling and are in leadership transitions. The combined valuation of a merged company would be $7.4 billion with William Hill shareholders owning 58 percent of the company.
For Amaya, the deal would mark a fresh start after its CEO David Baazov resigned amid charges of insider trading by Canadian regulators. A merger would mean Amaya would no longer be listed as a Canadian company and would have new management.
William Hill would retain its chairman and probably appoint Baazov’s successor Rafi Ashkenazi as CEO, Hughes speculated, solving a problem for William Hill, which doesn’t currently have a permanent CEO in place. The deal would also allow William Hill to continue its move away from the UK market as about 60 percent of the combined company’s business would be on online and 40 percent outside Britain, he said.
The deal could also reach the same 100 million pounds ($124 million) of annual cost savings that the aborted deal with 888 and Rank had promised. That could be worth an estimated $900 million of market capitalization. William Hill’s share would be worth $536 million, or about 50 pence per share, Hughes said.
Despite this, there was only a small positive reaction for William Hill stock on the British Stock Exchange after the announcement of the merger talks.
Investors may realize that under such a merger the combined company’s net debt would be more than 3.4 times EBIDTA at the end of 2016, based on forecasts compiled by Bloomberg. Amaya has a high level of debt at about £1.75 billion.
One of the reasons William Hill rejected the 888 and Rank merger was that the deal would have boosted its debt load, Hughes said.
Amaya also has other problems. Berenberg analysts, for example, point out the company is still involved in litigation in Kentucky concerning losses by online poker players.
Amaya has been fined $870 million in the state for alleged violations of Kentucky’s anti-gambling laws. Amaya is appealing against the fine and said it “vigorously disputes any liability”.
Amaya also draws about a third of its revenue from unregulated markets, which could be impacted negatively by a wave of regulation sweeping the online gaming industry.
Meanwhile, Baazov, Amaya’s founder and former chief executive, is being investigated by Quebec’s securities regulator for alleged insider trading in relation to the purchase of PokerStars and Full Tilt.
Still Amaya stock did better after news of the merger talks were announced and William Hill officials said the group is more favorably disposed towards the new bid as it will “create a clear international leader across online sports betting, poker and casino.”
However, Amaya’s gains quickly fell back as analysis of the potential deal started to move suggesting that Amaya stockholders aren’t likely to see a high premium in a merge.
