The initial takeover bid made on 8 August 2016 valued William Hill’s shares at 364p each. Following a swift rejection by its board, a revised bid on 14 August 2016 of 394p per share was also dismissed. The main reason for William Hill’s rejection of both bids was that it believed it undervalued the value of its business. William Hill also labelled the bids as “opportunistic” and based on “risk, debt and hope”. On the other hand, 888 and Rank bosses noted they had been unable to “meaningfully engage” with William Hill and abandoned their efforts to create a “transformational force in the global betting and gaming industry”.
The takeover bids are now dead in the water; under the Takeover Code no new bid can be launched for six months unless either (a) a new bidder enters the ring (which may invite both to have another bite at the cherry) or (b) William Hill reconsiders the bid.
William Hill, 888 and Rank arguably had a lot to gain from consolidating efforts in what is a fiercely competitive market. So, as we wait for the latest twist in the tale of British gaming, let’s revisit some of the key factors that ultimately determine whether or not a takeover may be successful:
Remember, money talks
A bidder wants to tempt the target’s shareholders by offering a substantial premium over its current share price but, as could be argued with 888 and Rank’s bids, financing such an ambitious offer with a disproportionate element of debt (£2.2bn, to be precise) would put the business at real risk; having insufficient working capital and weak borrowing power as a newly merged entity is not the greatest of starts.
Lay your cards on the table
Businesses can be valued in a variety of ways and depending on what calculation methods are adopted, a takeover bid can be interpreted very differently. Failure to obtain an agreed, realistic and commercially sensible valuation method from the outset can result in miscommunication, whereby the target resists on the basis that they feel the business is being undervalued, yet the bidder is left bewildered as to why the bid is not even being considered, let alone accepted.
Consider all costs
No matter which side you are on; launching, negotiating or defending, a takeover is costly, both in terms of securing financial commitments, instructing various advisers and getting approval of industry regulators. Moreover, the impact on management time is another significant cost; if the board is overly distracted by proposing or defending a takeover then it risks not having enough time to focus on the business as a whole and, crucially, its customers.
Due diligence is not just about looking at what has happened before; it should equally focus on and quantify the integration and synergy of the businesses post takeover. Short-sightedness and failure to consider integration risk, brought about by differing cultures and strategies of the boards, conflicting growth models, contrasting values and personalities of employees, differing branding and vision, or even slight differences in client base, can all result in disaster for the long-term success of a takeover.
Play your cards right
In consolidated and competitive markets, some boards see that launching a takeover bid is a sure fire way of strengthening their position. However, a takeover may not always be the right answer to deliver the growth objectives of the business (change is not always necessarily a good thing). A sensible balance should be struck between organic growth and acquisition.
It is no secret that not all takeovers are successful. After BMW’s takeover of Rover in 1994, Rover was sold for £10 in 2000 and then went into administration in 2005. And no one needs reminding what happened after RBS’ aggressive takeover of ABN AMRO just before the credit crunch hit. But there are plenty of success stories; Disney-Pixar, ExxonMobil and Tata’s takeover of Jaguar Land Rover, for example. A merger can increase size and reach, increase efficiency and boost revenues by more than the price premium offered, but it takes more than simply combining computer systems, merging a few departments and scaling down supply costs.
Meanwhile, back in the world of gaming there are now rumours circulating that the owner of SkyBet is considering a takeover bid for William Hill, as well as interest being shown by Australian based Tabcorp and Tatts Group. Will William Hill stick or twist? Will 888 and Rank return to the table? Does a potential bidder have an ace up its sleeve?
Richard Belsey is senior associate and Christopher Nelson is a trainee solicitor in the corporate team at Wedlake Bell.
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