Is William Hill plc a buy after bid approach from Rank Group plc and 888 Holdings Public Limited Company?

Should investors in William Hill plc (LON:WMH), Rank Group plc (LON:RNK) and 888 Holdings Public Limited Company (LON:888) take action after today’s news?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Photo: raver_mikey. Cropped. Licence:

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Should investors buy into a proposed merger between gambling firms William Hill (LSE: WMH), Rank Group (LSE: RNK) and 888 Holdings (LSE: 888)?

Shares in all three companies rose this morning, after yesterday’s Sunday Times reported that Rank and 888 have formed a consortium to prepare a bid for William Hill. The story was confirmed by early morning statements from all three companies.

William Hill was the biggest riser when markets opened, with the firm’s shares up by 7% at the time of writing. However, the high street bookmaker’s management played it cool this morning, warning investors that “it is not clear that a combination of William Hill with 888 and Rank will enhance William Hill’s strategic positioning or deliver superior value…”

Reports over the weekend suggest that discussions have been ongoing for a number of weeks. This suggests to me that boardroom disagreement about William Hill’s response to the approach by Rank and 888 may be one reason for the sudden departure of William Hill’s chief executive last week.

Does the deal make sense?

The gambling sector is seeing a wave of big mergers. Paddy Power recently merged with Betfair, while Ladbrokes is in the middle of a deal to combine with Gala Coral.

The logic of combining 888, Rank and William Hill is fairly obvious. William Hill and Rank Group have a strong set of sports betting and gambling brands, with a comprehensive high street presence.

888 Holdings is a fast-growing online operator that should be able to accelerate William Hill’s disappointing online performance. Combining the three firms could cut costs, improve scale and provide faster online growth.

The suggested combination isn’t entirely new, either. William Hill tried to buy 888 Holdings last year for £700m, but couldn’t persuade key 888 shareholders to accept the offer.

How would the deal work?

There’s no word yet on the likely value or structure of the deal. What seems to be likely is that Rank and 888 Holdings would merge before buying William Hill, which is a much larger company.

In my opinion, William Hill shareholders would probably be looking for an offer of at least 400p. The firm’s share price has flirted with this level a number of times over the last five years. However, earnings forecasts for the bookmaker have fallen by 17% over the last year, putting the group in a relatively weak negotiating position.

Earnings are rising strongly at both Rank and 888, and William Hill shareholders could be attracted by an opportunity to lock in a decent profit.

What should we do?

Talks are still at an early stage. There’s no guarantee that Rank and 888 will make a bid for William Hill.

Even after recent gains, shares in all three companies look quite reasonably valued and offer decent dividend yields. In my view, the best plan for shareholders in these firms is to hold on and wait for more concrete news. I don’t see any reason to take action now.

Given that the deal may not happen, I think investors considering buying should focus on the most attractive standalone companies. In my view these are 888 and Rank, although I’d want to look more closely at both before making a decision.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Paddy Power Betfair. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

After crashing 50%, is now the perfect time to buy this world-class FTSE 250 share?

The worst-performing share on the FTSE 250 over the last year is also the most exciting one of all. How…

Read more »

Illustration of flames over a black background
Investing Articles

Just released: July’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

Investing Articles

Is this one of the FTSE 100’s best-value growth shares?

Looking for great-value recovery shares to buy today? Based on City forecasts, this could be one of the best that…

Read more »

Investing Articles

Will the Tesco share price hit a 10-year high in 2024?

Up from 200p less than two years ago, the Tesco share price has enjoyed impressive growth lately. Now I'm considering…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Nearing its 12-year low, this FTSE growth stock could be the bargain of the year!

Harvey Jones has happy memories of owning this FTSE 100 growth stock. Now he's wondering whether to take a trip…

Read more »

Investing Articles

BT share price: a bargain or one to avoid?

This Fool has been keeping tabs on the BT share price. Despite looking cheap, he's steering clear of the stock…

Read more »

Electric cars charging in station
Investing Articles

Where will Tesla stock be in 5 years? Here’s what the experts say

The analysts' outlook for Tesla stock in the next few years seems to be all over the place, as the…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

3 reasons why I predict UK shares will soar over the next 12 months!

Our writer believes there are plenty of reasons why UK shares will do well over the next year or so.…

Read more »