888 forced to reschedule Wink payments
Operator left with no choice but to spread payments for the high performing bingo business - "change of control" in 888 before completion could jeopardise rumoured sale to Ladbrokes.
888 has been forced to spread its payments for Wink Bingo after the strong performance of its acquisition left it unable to settle the full earn-out payment of up to £48.7m due in May.
The operator will now make an immediate payment of £9.26m to Wink owners Daub Limited, with further payments of £9.26m and £6.173m on 21 May 2011 and 31 August 2011 respectively, with the remaining balance (of up to £23m) payable by 21 May 2012.
888 will also pay interest on all payments made after the original earn-out date of 21 May. Although the deal has proved earnings enhancing the interest payments could mean it eventually pays more for Wink than the total consideration capped at £59.7m. 888 also acquired the GlobalCom bingo platform, now part of its B2B arm Dragonfish, from Daub for around US$43m in March 2007.
The operator revealed in February that it would be obliged to make a cash payment towards “the upper end of the range” of the earn-out of up to £48.7m due in May this year, an amount exceeding the $US67m (£42m) in cash on its balance sheet as of 31 December 2010.
888 being unable to meet its obligations for Wink follows chief executive Gigi Levy telling eGaming Review on the day the acquisition was announced that the structure of the deal made it a “no brainer”.
In December 2009 Levy told eGaming Review: “We had the chance to buy on a success-based deal on a multiple of six, which is very earnings enhancing, making it a no-brainer. The vendors are very capable marketers and did not want to limit themselves to a low number, as they think they can generate phenomenal growth next year, for which they have budgeted for up to £8m in profit. They actually wanted a cap that is slightly higher. We don’t expect to pay the full consideration.”
Should there be a change of control at 888 before it has completed its payment for Wink “ such as the long-discussed takeover by Ladbrokes “ Daub could compel 888 to sell the bingo business to facilitate repayment, with the same clause being triggered should Gigi Levy cease to be on the board of 888 or if the operator defaults on payments.
Daub has also been given security over the assets comprising Wink Bingo so it could sell the business for the outstanding earn-out amount in the event 888 went into administration or liquidation.
Until it has paid the full earn-out for Wink, 888 will also be bound by a number of restrictions, including paying dividends or make distributions to shareholders, paying extraordinary management or advisory fees and bonuses, from making any material acquisitions or disposals, or taking steps to delist or suspend shares on the London Stock Exchange.