888 Holdings to pay nearly $330M less for William Hill's international assets from Caesars

British gambling heavyweight 888 Holdings is set to pay a smaller price than initially announced for its purchase of William Hill’s international assets from US casino and gaming giant Caesars Entertainment, the companies said on Thursday.

Las Vegas-based Caesars first bought British bookmaker William Hill in a $4 billion deal, completed in April last year - one of the largest mergers within the gambling industry in recent years. The company then agreed to sell William Hill’s non-US assets to 888 for £2.2 billion ($2.88 billion), a transaction unveiled in September. 

However, enterprise value has now been reduced to £1.95 - £2.05 billion ($2.55 - $2.68 billion), 888 Holdings informed in an acquisition update. The revised terms of transaction reflect “the change in the macro-economic and regulatory environment” since the initial announcement of the deal last year, as well as “compliance factors impacting the WH business,” including actions taken as part of an ongoing review by the UK Gambling Commission.

Cash consideration (equity value) payable to the seller at closing has been reduced from £834.9 million ($1.09 billion) to £584.9 million ($765.03 million). The updated figure is nearly 30% -or £250 million- below the previously agreed terms.

The company also unveiled an agreement to pay up to £100 million ($130.83 million) in deferred consideration in 2024. This is conditional upon the enlarged group achieving a minimum level of Adjusted EBITDA for the 12-month period ending December 31, 2023. If payable, 888 may satisfy all or any proportion of this consideration in cash or by the issuance of new shares.

888 Holdings reaffirmed the deal is on track for completion in June this year, and stated it represents “an attractive acquisition” multiple of approximately 7.5x normalized EBITDA, and 5.7x1 on a post-synergy basis for William Hill for the 12 months ending December 2021.

In connection with the ongoing William Hill license review, launched by the UKGC, Caesars has agreed “to indemnify the UK-licensed entities from completion with respect to certain potential losses and costs” arising from the process. This indemnity agreement with Caesars was reached in March, 888 explains, and considers possible liabilities arising from any license suspension or specific license conditions imposed by the regulator.

William Hill Group is currently being subjected to an ongoing license review, and addressing certain action points by the UKGC, in relation to its social responsibility and anti-money laundering obligations. This follows a compliance assessment conducted by the regulator in July and August 2021.

888 Holdings explains in its acquisition update that William Hill has provided the UKGC “with an action plan to address the action points” raised by them, and is in the process of implementing that plan. William Hill is to provide in its financial statements for fiscal year 2021 to cover expected potential cash outflows resulting from any regulatory sanctions and associated costs to the license review.

Despite the potential penalties William Hill could face regarding its license review, 888 said its board of directors “continues to believe that the acquisition represents a transformational opportunity" for the group to significantly increase its scale, further diversify and strengthen its product mix and “build leading positions across several of its key markets.”

The combination of 888 and William Hill International is expected to deliver “significant operating efficiencies,” including pre-tax cost synergies “of at least £100 million ($130.83 million). The enlarged group will be “strongly growth-oriented,” benefitting from “a clear scale advantage” and strong product and geographic diversification.

Lastly, 888 provided an update on the financing of the acquisition and capital structure. In order to fund the deal, the business has fully committed debt financing from J.P. Morgan, Morgan Stanley, Mediobanca and Barclays Bank PLC of approximately £2.1 billion ($2.74 billion).

The group also now intends to issue up to 70.8 million new ordinary shares in the capital of the company through an accelerated bookbuild, representing approximately 19% of the issued share capital of the business. 

This represents about £136 million ($177.84 million) as of Wednesday’s close. This placing replaces a previously announced expectation to raise about £500 million ($653.95 million) of gross proceeds by issuing new equity.

Analysts at Jefferies said in a note, retrieved by Reuters, they believe the revised terms of the deal "make strategic and financial sense", adding that this will materialize in 888's balance sheet. Shares in the London-listed business soared nearly 30% after it announced it would have to raise less capital to partly fund the purchase.