Playtech this morning confirmed that William Hill had decided to exercise its option to buy out its 29% stake in the William Hill Online JV, after the companies agreed a £424m valuation.
“The JV has been a success, and we have been delighted by that success. It is time to move on though”, William Hill CEO Ralph Topping (pictured) told analysts at the company’s full-year earnings call later that morning.
“Our conclusion was and is that it’s throwing off good earnings and cashflows, and why wouldn’t you want to own 100% of those?
“We should be investing more than £20m cap ex a year in this business, but we couldn’t under the JV. It means, if and when they come up, we can do bolt-on acquisitions. That proved difficult with the JV structure. It means we want the stellar online team that we’ve assembled to work with the rest of the William Hill group, whether on promoting multi-channel, or in Australia or in the US.”
As for why it had chosen to exercise its call option now rather waiting two years - when several analysts have suggested the cost of the buyout could have been lower due to the forthcoming British place-of-consumption tax - Topping said the company’s major shareholders “have backed our view of the world” and were strongly supportive of the accompanying £375m rights issue.
“In our view, it could well cost more than two years [of] enhanced earnings today against the rights issue, the adjusted alternative, and we won’t be paying a minority dividend over the next two years. We are confident we shall get the benefits of operational and strategic freedom for those two years.”
A jovial Topping also awarded analyst Nigel Hicks of Agency Partners with a prize for most closely predicting the eventual £424m buyout price - four cans of Foster’s Lager, as well as “a Barossa Shiraz…from Waitrose, a company that is dear to my own heart”, in tribute to its recent acquistion of Sportingbet’s Australian business.
On the “naval-gazing” valuation process undertaken by three banks, one appointed by Hill’s, another by Playtech and an independent valuation by Rothschild, Topping wryly commented:
“There’s no doubt going to be some questions about how many envelopes were opened. There were two envelopes opened, that left one envelope not opened. And for those of you who can’t work out which envelope didn’t get opened, can you please leave the room and seek a career elsewhere.”
Playtech boss Mor Weizer said the £424m payment plus the €140m profit share it received during the term of the JV represented a cash return 3.5 times its original investment. Playtech transferred approximately €177m of affiliate and marketing assets to Hill’s in December 2008 for its stake.
The London-listed supplier told the market it was now undertaking a comprehensive review of how best to use the proceeds from the disposal on “value enhancing” transactions “with a focus on regulated markets.”
Article written by Stephen Carter
