It is understood that William Hill has reached a preliminary deal with 888 for 210p per share, which values 888 at £744.3m. However, it has also been reported that one of 888’s founding families is holding out for an offer of 300p per share, a full 105% above yesterday’s closing price.
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It is understood that William Hill is looking to acquire 888 in order to bolster the company’s online presence. But 888 has been a possible takeover target for some time now and there’s a chance that William Hill could find itself entangled in a bidding war. Indeed, several private equity firms have expressed interest in 888 over the past year and Ladbrokes has looked at the group.
Unfortunately, there’s little information regarding the deal as of yet, so it’s difficult to assess the possible outcomes. Nevertheless, on the face of it, this seems to be a prudent move by William Hill’s management. The company already has a strong online presence and a move to acquire 888 will boost the group’s customer base. And it’s not as if William Hill is struggling to grow.
The company reported record results for the 52 weeks to December 30. Profits jumped 11% year-on-year to £371m as revenue expanded 8%. What’s more, for the period the company’s online arm reported double-digit earnings growth of 18%, despite what the company called ‘customer friendly results’.
Priced for growth
Investors are willing to pay a premium for William Hill’s growth so, unfortunately, the company looks expensive at present levels. Additionally, it’s difficult to try and predict the company’s future performance as profits are unpredictable and highly dependent upon ‘company friendly results’.
For example, over the past five years William Hill’s earnings per share have risen by around 50%. However, earnings per share peaked at 29.3p during 2012 and have remained below this level ever since. Moreover, City analysts believe that earnings will fall by roughly 7% during the next three years.
And at present levels, William Hill’s shares currently trade at a forward P/E of 13.1, rising to 15.3 next year. Of course, these estimates exclude any benefit from the merger with 888.
The bottom line
Overall, William Hill’s offer for 888 is great news for 888’s shareholders. William Hill is offering a significant premium to the current share price.