When William Hill threw out a cheeky three-way merger proposal from the Rank Group and 888 Holdings a couple of months ago, its chairman, Gareth Davis, explained robustly that the bookmaker would not be doing a deal based on “risk, debt and hope”.
Quite right, too. Life has become tougher for William Hill over the past year, and it has lost its chief executive on the way, but there was no reason to panic.
But now comes a deal the board wants to look at – a potential “merger of equals” with Amaya, the Canadian company whose PokerStars website dominates the world of online poker. But, using Davis’s own yardsticks, the appeal looks wobbly at best.
On risk, Amaya brings at least two big ones. The more obvious is a $870m (£704m) penalty in the US state of Kentucky. Amaya is probably correct in thinking it will not end up paying anything like that sum, but one can never be sure given US authorities’ past (baffling) attempts to combat online poker.
The other risk is that William Hill ends up with too much exposure to unregulated markets, meaning those where gambling is either banned or the rules are so unclear that your local operation can legislated out of existence. At the moment, William Hill’s exposure to unregulated territories is an admirably low 5%. After a merger with Amaya, the ratio would rise to about a quarter of the business. Big difference.
On debt, Amaya would bring a bundle. The combined group’s borrowings would be about 3.5 times the top-line profits. Historically, William Hill has aimed for under two times. If high levels of debt are not your bag, Amaya is a strange choice of partner.
The hope element is that cross-selling will do wonders for both companies – that Amaya’s poker players will want to bet on sport with William Hill, and vice versa. That seems plausible, but the degree is untested.
Add it up and we can agree that Amaya looks a better gamble than the complex Rank/888 proposal, where the debt ratios would have been even higher. The Canadian company is a fearsome generator of cash and it is digital and international – qualities prized by William Hill. All the same, there’s a whiff of desperation in the idea that an overdose of online poker, a game that’s barely growing these days, is the thing to fire up William Hill.
Note the limp reaction in the share price, up just 3%. In poker terms, Amaya is offering a marginal hand. William Hill’s investors may fairly feel the self-help cards are stronger.