What Does the Future Hold for William Hill and Amaya?

GuruFocus.com

- By Nicholas Kitonyi

William Hill (WIMHF) abandoned its proposed merger talks with Poker Stars owner Amaya (AYA). This is the third time in recent memory that the company has failed in protracted merger talks. The company also failed to merge with 888 Holdings (888.L) and Rank Group (RNK.L). The U.K. bookmaker's $4 billion bid went south when 888 and Rank called off the deal.


Sources confirmed the interests of William Hill and Amaya were firm and the "equal share merger" would have given rise to an organization that could have been worth $5.5 billion.

William Hill would have retained majority share thus allowing its shareholders to access 58% of the total value.

Since failing to tie up 888 Holdings and Rank Group, William Hill shares continued to drop. The trend, however, changed momentarily after the mention of the Amaya merger with the stock surging 6.5% to a market value of $3.3 billion. Amaya's stock also performed well and registered an increase of 8.2% following this announcement.

The proposed merger was also not a first for Amaya. The Canadian iGaming company had consistent requests from other organizations and private equity firms.

According to reports, Amaya has been evaluating options over the past six months to boost overall performance. Former CEO David Baazov offered to purchase the company for $2.1 billion in February.

But the deal did not materialize following legal proceedings that linked Baazov to the 2014 Oldford Group scandal - the $4.9 billion acquisition of online cardrooms Poker Stars and Full Tilt Poker - thus forcing him to resign in August.

Last week, Baazov went back with an improved offer of $3.48 billion in Canadian dollars ($2.59 billion in U.S. currency), and it looks as though the shareholders are seriously considering the offer this time around. The company CEO isn't giving any assurances.

On the other hand, after struggling with bad profits in March, William Hill saw fit to oust CEO James Henderson in July. As such, it appears as though both companies needed something to boost investor sentiment at least for the near term.

Amaya could have given William Hill an edge in the lucrative iGaming market; according to developments on the global online poker stage coupled with favorable trends in the casino and sportsbook segments, it appears William Hill could end up looking at this as an opportunity it should have taken seriously.

Online gaming is exploring new frontiers, and Amaya is in the thick of things thanks to its links to the iGaming industry. Right now live casino gaming platforms like immersive roulette are indicating there is still so much room for innovation in the online gaming market in which Amaya and William Hill would have been a dominant force had the deal gone through.

A note by Ivor Jones, an analyst at Peel Hunt in London, noted that a merger of the two organizations would have created "a leader in online poker and sports betting." This follows previous unsuccessful mergers or buyouts from the two.

As for now, William Hill's issues with its executive team still remain a challenge. Even though it ranks as the world's biggest online gambling company, Amaya has also faced several challenges (i.e., investigations of insider trading).

On the bright side, a successful deal not only would have allowed William Hill to divert its focus from physical betting shops and transition to an online platform but also would have diversified the U.K.-based organization's investment in the rest of the world. The merger would have given rise to 60% online activity and 40% world coverage.

In order to maintain position and overcome stiff competition from startups and other big players in the industry, mergers have become the order of the day in the gambling and sports betting market. In 2015, Paddy Power and Betfair merged to form a $9.4 billion company.

Conclusion

Mergers and/or acquisitions have been on the rise in the betting and gaming industry in the U.K. following the implementation of the new gaming taxation act, and this is expected to continue for the foreseeable future.

With the deal now off the window, it leaves Paddy Power-Betfair as the biggest player in the online gambling and sports betting market. None of the other players even comes close.

Disclosure : I have no position in any stock mentioned in this article.

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This article first appeared on GuruFocus.