Talks Continue in Complicated William Hill, Amaya Merger Situation

Consolidation continues in the online gambling and sports-betting markets with the latest batch of speculation surrounding the on-again-off-again “merger of equals” William Hill and Amaya Gaming.

The two companies have been immersed in heated talks for many weeks, so much so that both companies fund it necessary to issue a joint press statement earlier this month.  That statement, in which the firms acknowledged the possible £4.6 billion wedding, was a regulatory necessity, given ongoing speculation on the two companies’ stock.  (And for Amaya in particular, still immersed in a Quebec [Canada] provincial securities investigation that’s already resulted in the departure of former CEO David Baazov, that disclosure was vital.)

On the surface, the tie-up between the two firms seems like a natural.  William Hill is the long-time bookmaking giant, the United Kingdom’s largest for many decades, as well as being a potent market force throughout much of Europe.  And Amaya is the current parent company of PokerStars, the runaway leader in the online-poker segment, with roughly ten times as much volume as its nearest competitors.

The two sites, in theory, don’t have that much overlap in their actual business offerings, even if there are hundreds of thousands of bettors who have accounts both at Stars and at Bill Hill.  However, both companies are already mature, in the business sense, in their own market segments.  Both firms have also sought to continue their recent aggressive takeover tactics, in particular William Hill, which has been involved in deal talks with various companies several times in the past two years.

It’s all come to naught for the Hills, however, which is why this possible deal smacks of urgency.  And despite the obvious crossover possibilities, the proposed deal might not be that sound… to the point that some current William Hill investors are making it loud and clear to the company that they should run, not walk, away from the possible merger with Amaya.

Among the loudest voices: The co-founders of Parvus Asset Management, Mads Eg Gensmann and Edoardo Mercadante.  Their company is the largest institutional shareholder of William Hill stock, owning 14.3% of the company.  And this week, they went on the attack against the proposed merger, both sending a letter to William Hill’s board of directors and taking their concerns public to major UK financial outlets.

“We strongly encourage that the board and management stops wasting valuable time and shareholder resources pursuing this value-destroying deal,” Gensmann wrote, on behalf of Parvus.  He also cited “blatant double standards” in the proposed deal that seemed to heavily favor Amaya’s interest, include recent exchange-rate fluctuations for the Canadian dollar (Amaya’s home country) against both the Euro and British pound.

Gensmann also cited William Hill’s much better cash-flow status when compared to that of Amaya, a company which might well not even be considering such a deal were it not currently under a heavy debt load.  Amaya had hoped, when it picked up the PokerStars family of brands in 2014, that it would quickly gain a re-entry into the fledgling “legalized” US online gambling market.  However, the company has encountered significant headwinds, being licensed only in one US state, New Jersey, while facing a nearly intractable situation involving tribal gaming rights in the most populous US state..

Worse, there’s still a bizarre US $800 million judgment hanging over Amaya’s head, rendered in favor of the state of Kentucky (by a home-field judge) in connection with the old, pre-Amaya PokerStars services to that state’s residents.  The truth is, there’s only a small likelihood that Amaya will end up paying that judgment, but it contributes to the unsettled nature of the Amaya situation.

Amaya’s past and present contrasts sharply with good ol’ stodgy Bill Hill, and that’s the crux of why the deal isn’t as cut-and-dried good as it seems.  Nor are the Parvus investors the only people questioning the merger.  Former William Hill CEO Ralph Topping echoed many of the same sentiments when questioned about the Parvus letter.  Topping, who served as Hills’ CEO for eight years before retiring in 2014, told London’s Financial Times that he “was left scratching my head” about the deal.  Topping also asserted that both companies have their own deep problems that need fixing, before worrying about how best to merge with each other.

Still other voices came out in support of the deal, such as New York financier Jason Ader — who also had a significant share in bwin.party.  Ader was deeply involved in the bidding war between 888 and GVC that broke out over who was going to buy bwin.party, and at the time, Amaya was rumored to be considering a bid for bwin.party as well.

Meanwhile, both William Hill and Amaya have issued brief statements reasserting that the merger talks will continue, despite the recent investor pushback.  For Amaya, it may not even be the last option, as the aforementioned GVC Holdings has also been reported to have made an offer for Amaya.  It’s perhaps not as sweet a deal as the one currently in process with William Hill, but it’s another indication that the corporate wheels are turning, and another major deal might happen soon.