Starting the week off with a resounding bang is the news that two major listed companies on the London stock exchange, UK gambling group William Hill and online gambling software provider Playtech, are to combine in a new venture branded William Hill Online headed by ex- Leisure and Gaming CEO Henry Birch.
William Hill will control and operate William Hill Online, which will remain a consolidated subsidiary, with Playtech's share of profits shown as a minority interest.
On a pro forma basis for the year ending 31 December 2008, William Hill Online is expected to generate net revenues of £190 million and EBITA of £75 million. Net revenues are targeted to grow by more than 50 percent between 2008 and 2010. In 2009, focus will be on net revenue growth with margins maintained. In 2010, focus will be on continued net revenue growth and improving margins.
The transaction is expected to require limited upfront cash with capital expenditure, transaction costs and integration costs of approximately £24 million.
The move will come as a disappointment to William Hill's software provider Cryptologic which has apparently not been included in the deal. William Hill boss Ralph Topping commented some months ago that he had major plans to expand the group's online gambling involvement, perhaps ultimately resulting in a substantial proportion of group revenues being derived from this source.
Commenting on the deal this week, Topping said: "This transaction is a transformational step for William Hill consistent with our stated strategy to increase online gaming and international earnings. William Hill Online will be the leading European online gaming and sports betting business and the clear online leader amongst UK land based gaming and betting operators.
"The transaction generates significant shareholder value and enhanced growth prospects for William Hill."
The venture sees the creation of a powerful online casino, poker and sportsbetting firm branded William Hill Online, which will acquire affiliates of Playtech plc, with the software provider initially holding a 29 percent share and William Hill plc owning 71 percent. Playtech software will be used in the five year exclusive venture.
Playtech will acquire certain online gaming marketing assets, businesses and contracts from affiliates and other third parties for up to £144.5 million in cash and sell the majority of the assets to William Hill in return for its 29 percent stake in William Hill Online. The software provider has the option to lift its stake to 32 percent if certain conditions are met.
Unidentified (Playtech) purchased assets* will bring "online marketing and customer retention expertise, an extensive affiliate network and established European customers and profits to the deal" a joint statement advises. "In addition, the employees of the purchased assets have experience and knowledge in the operation of Playtech gaming software." This will make William Hill Online the leading European online gaming and sports betting operation.
William Hill has the option to buy Playtech's stake on an independent fair value basis, exercisable after four and six years.
Playtech has the right to receive a portion of the option proceeds in William Hill shares, not exceeding 10 percent of William Hill's outstanding share capital at the time of issue.
The five-year deal will give William Hill access to Playtech’s online casino and poker technology, and will see a major boost to Playtech's rapidly growing iPoker network.
Henry Birch, an experienced online gambling executive who previously served as CEO at the Leisure & Gaming land and online gambling group, has been appointed as Chief Executive Officer of the new company. Other members of the executive team will be Eyal Sanoff as Chief Marketing Officer, Peter Marcus as Chief Operating Officer and finance and legal functions provided by William Hill.
A statement from the parties said that the transaction is expected to be earnings positive in the first full year of ownership, and significantly accretive going forward.
The William Hill-Playtech agreement combines two complementary businesses. William Hill Interactive brings strength of brand, sports betting expertise and an established UK customer base and profit stream to the table. The as yet unidentified Playtech "purchased assets" bring online marketing and customer retention expertise, an extensive affiliate network and an established European customer base and profit stream.
For the six months ended 1 July 2008, the "purchased assets" repeatedly referred to in the agreement generated net revenues of £26 million and pro forma EBITA of £8 million the new partners have revealed.
In addition, access to Playtech's software network is expected to provide greater liquidity for online poker and lead to increased customer retention, customer reactivation and player lifetime values. The Orbis sportsbetting software platform, which will be used for the sports betting business, remains on track for implementation in late November 2008.
In a seperate statement, William Hill said that revenues were being maintained despite the increasingly bad UK economic news. In the 15 weeks to October 14, gross win climbed by 9 percent compared with the same period a year ago.
“This is a solid operational performance by the Group since the half year, demonstrating the resilience of the business against a challenging economic environment; to date we see little evidence that our business has been impacted by the economic downturn,” chief executive Ralph Topping said.
“With nine months of the year completed, and notwithstanding that comparatives become tougher over the final quarter, the board remains comfortable with market expectations for the group.”
Retail gross win climbed by 10 percent, with gaming machines posting a 14 percent rise and over the counter betting a 7 percent rise.
Interactive betting gross win, which includes online gambling, climbed by 21 percent, while that of telephone betting, which accounts for about 4 percent of revenues, was up 30 percent.
Source: InfoPowa News
* Ed's note: In news that sends a (bad) shiver down our spine here, some of the unidentified assets alluded to in this report include the cPays group. Known throughout the online casino industry as being as dishonest a business as you would never want to deal with, it is a huge shock to see a company with the good reputation of William Hill associating itself with a company of such ill repute. Time will tell if William Hill is able to clean up the cPays act, but we won't be holding our breath waiting.