Facing Buyer’s Regret, 888 is Drowning in Debt After Reverse Takeover of Storied William Hill
At the time–with the world awash with cheap money–it seemed like a master-stroke; a supreme marriage of convenience between the brash, ballsy iGaming newcomer and the legendary, but aging, British gambling aristocrat that had been seduced and then stripped by an American lover.
Into this compelling scenario enter 888’s Itai Pazner, the man with the Midas touch — and a nose for a killer deal, if there was one in the offing.
In April last year, after a lengthy and complicated courtship, Caesars Entertainment, one of the Great White sharks of traditional US gambling, finally bought Britain’s storied William Hill for £2.9 billion (US$3.47bn/€3.35bn).
Founded in 1934, William Hill is a brand that is synonymous with the comfort and joy of everyone’s favourite High Street bookies.
But Caesars, keen to master the new era of online gaming, now supercharged by the serried lockdowns of the Covid19 pandemic, wanted none of this “olde worlde” charm.
They were happy to off-load all of William Hill’s non-US business for a not inconsequential £1.95 billion (US$2.34bn/€2.25bn), marking a considerable discount on the initial cost of acquiring WH’s cutting-edge iGaming savvy.
The deal between Pazner and Caesars was struck in the pre-Ukraine War days when interest rates barely registered.
And in what constituted a “Reverse Takeover”—given the relative size and paper value of the two companies—Pazner, a former chief commercial officer, before turning CEO, pushed through the acquisition by borrowing — and then borrowing some more, until he burdened 888 Holdings PLC with some £1.6 billion of debt (US$1.92bn/€1.85bn).
In return he got William Hill’s two million active customers, a blue chip brand, 1,500 UK high street betting shops and online verticals in Italy and Spain — and an optimistic promise that merger synergy would yield over £100 million (US$119.9m/€115.68m) in savings between the newlyweds.
Upon completing the acquisition in July this year, Pazner said: “I am delighted to announce the completion of our transformational combination with William Hill.
“We have built an outstanding leadership team, combining strengths from across both businesses, and as I look at the future, the combination of our product and content leadership, powered by our proprietary technology, and our world class brands, gives us a powerful platform for growth.”
Lord Jonathan Mendelsohn, Chair of 888, added: “This combination brings together two high quality businesses to create a powerful, global betting and gaming business.
“We believe the acquisition will create significant value for shareholders, creating a combined business with leading technology, products and brands across sports betting and gaming.
“With a top quality management team, formed from talent from across both businesses, I am confident about our future plans.”
Yet, thanks to savage interest rate hikes and a tanking world economy, these lofty aims are far short of target.
Today, this reporter contends, 888 Holdings is facing something approaching an existential crisis — if not profound buyer’s remorse.
Around 65 per cent of its debt burden—which the company concedes is “higher than anticipated”—is held at choking, or so-called “floating” rates.
Its current debt ratio is a stonking 5.7 times earnings.
They are now adopting an “extremely disciplined approach” to reduce this level of debt to 3.5 times earnings.
In monetary terms, 888 are, likewise, “extremely” exposed.
Other factors have also impacted Pazner’s grand vision.
888’s revenues have been hit by their temporary exit from the recently-regulated Dutch market – and there has been the added cost of investing in safer gambling measures in anticipation of British betting reform.
“Some things, like market forces, are beyond our control,” admitted Pazner recently. “[But] what is in our control is how we deal with it.”
The group is now planning to refinance some £347million (US$416.28m/€401.4m) of bank loans connected to its purchase of William Hill International.
888 may have set themselves “clear and sensible targets”. But for Pazner and his shareholders, who have seen their company’s stock crash by two-thirds of its value this year alone, it’s going to be one long, hard slog up the hill of redemption.