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The tough UK regulatory regime is directly affecting mergers and acquisitions, as 888 has been able to negotiate a discount purchase price for William Hill’s European holdings due to a changed “macroeconomic and regulatory environment”, which apparently includes a feared multi-million pound fine.
William Hill is undergoing a licensing review by the UK Gambling Commission and it has set aside £15m to cover penalties linked to problems the commission has found in its social responsibility and anti-money laundering policies, according to 888.
Such a fine would be the Gambling Commission’s largest ever.
The UK bookmaker is currently also following an action plan designed to address “challenges implementing cross-brand self-exclusion processes”, 888 said.
The regulator is also considering the “regulatory consequences, if any” of William Hill submitting incorrect data on the impact of the COVID-19 pandemic on gambling behaviour, 888 said.
But William Hill’s pain has meant at least a short-term gain for 888.
888’s shares rose 17 percent on Thursday (April 7) to 224.2 pence as it announced the amendment to its September deal to buy the UK bookmaker’s non-US holdings from Caesars Entertainment.
The deal will “transform 888 in terms of scale and therefore relevance to investors”, said Peel Hunt analyst Ivor Jones, who has a “buy” rating on the company.
888 itself was fined £9.4m in late February for social responsibility and anti-money laundering failings, a penalty which included a warning and an order to undergo a third-party audit. That penalty followed a 2017 fine for failing vulnerable customers.
The Gambling Commission is conducting a licensing review of William Hill based on a July-August 2021 compliance assessment of social responsibility and anti-money laundering requirements, 888 said.
News of the potential fine comes as a review of the 2005 Gambling Act continues, with details of the government’s plan expected soon. The review could include imposition of affordability checks and limits on slots stakes.
Tighter regulation could have a “material adverse impact” on the enlarged company, as the UK is a key market for 888, representing nearly 40 percent of revenue for it last year and 78 percent of the revenue for the non-US parts of William Hill that it is buying, 888 said.
Caesars is providing indemnity of up to £152m for the outcome of the licence review and up to £78m for any licensing conditions, 888 said.
If William Hill’s licence is suspended, Caesars would make a one-time payment of £150m at time of reactivation of that licence.
A Gambling Commission spokesman said the regulator does not discuss individual cases, but the outcome of any licence review will be public information.
William Hill is implementing an “action plan” to address issues, 888 said.
Cash consideration to Caesars drops to £585m from an earlier £835m, which means the enterprise value of William Hill drops to £1.95bn from £2.2bn.
888 may need to pay a deferred consideration of up to £100m in 2024, based on EBITDA.
The company also announced a 78.5m share placing to fund the deal, or about £136m based on Wednesday’s close, compared with an original £500m capital raising.
Last year, William Hill revenue rose 7.3 percent to £1.24bn, led by a 25 percent gain in UK online revenue, 888 said. Adjusted EBITDA gained 10.4 percent to £164.4m.
The deal is expected to close in June, 888 said.
