Hills agrees £424m price for Playtech JV stake
Software provider to receive 3.5 times return on investment when payment is made in cash in April.
William Hill will pay £424m for Playtech’s 29% stake in its online joint venture, the London-listed operator has announced this morning, with CEO Ralph Topping saying the JV “Has been very successful for both parties.”
The agreement will provide the software provider a 3.5 times return on the investment it made upon the setup of the William Hill Online JV in 2009, and values WHO at £1.5bn.
Following a 24% year-on-year rise in net revenues from its online joint venture in 2012, William Hill has announced the £424m acquisition on the same morning that Ladbrokes has completed its 30m (£25.9m) acquisition of exchange operator Betdaq.
Once the payment is made in cash before the end of April, pending the approval of Hills’ shareholders, the two parties existing software deal will remain unaffected. Hills notes that, should the deal not be completed by 30 April, a further call option on Playtech’s share – set for 2015 – will automatically terminate.
However Topping said: “We are very pleased with the indications of support from shareholders so far for the acquisition and the Rights Issue.
“In our view, the Rights Issue is the most appropriate way to fund the Proposed Acquisition. This will leave the Group with the appropriate capital structure, taking into account expected trading conditions and potential future developments, and the flexibility to pursue its stated strategy,” he added.
The operator intends to raise approximately £375m of the total consideration through the issue of new shares, plus approximately £50 million from part of the 2012 Bridge Credit Facility, set up last year with the goal of financing the acquisition of Sportingbet’s Australian and Spanish businesses.
Topping explained that end of the joint venture would not affect Playtech’s role as a “key software supplier” to the operator, describing the JV as having been “very successful for both parties.” However, there has so far been no indication as to whether the stake sale includes a tenet which would block Playtech from working with Hills’ close competitors such as Ladbrokes.
William Hill has announced its intention to leverage WHO’s assets across the broader group, including the Australian business it will formally acquire from Sportingbet later this month.
While a statement had been issued by Playtech in the light of the Hills-Sportingbet agreement in December claiming the £454m deal should be counted in the WHO valuation process, this potential sticking point was raised by neither Hills nor Playtech in statements issued this morning.
Hills said in a statement that the exercise of the call option “Represents a compelling opportunity to strengthen future growth prospects for the broader Group [and] increased strategic flexibility arises from the simplified ownership structure.”
“Having been advised of the valuation of Playtech’s 29% interest, the Board has concluded that it is in the best interests of our shareholders to exercise our call option to assume full ownership of this attractive, high growth, high performing business,” he concluded.
Playtech chief executive Mor Weizer added: “William Hill Online has been an overwhelming success and has delivered a cash return to Playtech greater than 3.5 times its original investment, excluding software royalties in the four years since inception.
The success demonstrates the potential to create value by combining a well-established brand with Playtech’s best of breed technologies, products and services. I would like to thank the William Hill and William Hill Online management team for their efforts, and we look forward to our strong supplier relationship continuing.”
In its full-year results for 2012, William Hill reported that the online division saw a 24% year-on-year rise in net revenues, up from £321.3m to £406.7m. This drove strong growth in total group profits, which rose from £146.5m to £231m “ an increase of 56%.
Gaming net revenue was driven predominantly by the Playtech and Vegas Casinos, which saw revenues grow 23% and 15% from 2011’s takings respectively. This contributed to a 36% year-on-year rise in online profits, which rose from £106.8m to £145.3m, with Playtech making £42.1m from its non-controlling interest.
Analyst Simon Davies of Canaccord described the deal as “An excellent outcome for Playtech,” issuing a ‘Buy’ recommendation on shares in the London-listed provider.
“Playtech’s WHO deal has been an outstanding success, and the disposal crystallises significant value for shareholders. The key will be what management does with the proceeds,” added Davies.