William Hill To Acquire Mr Green as Part of Post-Brexit Strategy

On the morning of Wednesday, Oct. 31, 2018, British betting giant William Hill PLC announced its intention to purchase Sweden-based Mr. Green & Co. in an all-cash deal worth approximately 2.819 billion Swedish krona (about $311 million). The acquisition is widely perceived to be an attempt by William Hill to broaden and internationalize its revenue streams in preparation for Brexit.

About the Deal

The transaction must be approved by Mr. Green’s shareholders before it can proceed, and it needs about 90 percent support to succeed. It is perhaps for this reason that Will Hill is willing to pay such a pretty penny for the company. The offer price of 2.819 billion krona works out to 69 krona ($7.62) per share: a hefty 48.5% premium on the Oct. 30 closing price of 46.45 krona ($5.13) per share.

The board of directors of Mr. Green recommends the deal to the other shareholders. These execs control between themselves approximately 40% of all outstanding shares. Because this is an all-cash purchase, the existing shareholders will not receive any ownership in William Hill. Commenting on his firm’s intentions in a press release, William Hill CEO Philip Bowcock said:

“This proposed acquisition accelerates the diversification of William Hill – immediately making us a more digital and more international business. MRG will provide William Hill with an international hub in Malta with market entry expertise and strong growth momentum in a number of European countries. William Hill will move from a single brand to a suite of brands that can maximise growth opportunities moving forward in new and existing markets.”

About the Two Corporations

William Hill is one of the world’s largest bookmaking organizations with more than 2,300 physical betting shops in the United Kingdom. It also manages an online portfolio consisting of a sportsbook, casino, poker room, bingo hall and other gambling products. The company has made forays into the nascent U.S. sports betting market with an existing Nevada mobile sportsbook and an agreement in place with American casino entertainment business Eldorado Resorts. William Hill trades on the London Stock Exchange with ticker symbol WMH.

Mr. Green is an online casino group that transacts in quite a few European markets, including Great Britain, Denmark, and Italy. Besides its iconic Mr. Green brand, it also owns Redbet, MamaMiaBingo and several other internet gaming enterprises. Mr. Green is publicly listed on the Stockholm Nasdaq exchange under the ticker symbol MRG.

How Will the Deal Diversify Will Hill’s Operations?

A close look at the numbers supports Philip Bowcock’s opinion that bringing Mr. Green into the William Hill fold will help broaden the parent organization’s money-making efforts. Whereas Will Hill’s online activities only generated 42% of its overall revenues, according to 2018 half-year reporting, this figure increases to 47% if we include Mr. Green’s figures. At the same time, the fraction of William Hill’s revenue coming from international markets jumps from 14% to 21% when considering Mr. Green’s contribution.

From 2016 to 2017, Mr. Green’s revenue grew from 924.5 million krona ($102 million) to 1,192 million ($132 million): an increase of 29%. William Hill, a larger and older corporation, by contrast saw a bump in revenue from 1,603.8 million pounds ($2.09 billion) to 1,711.1 million pounds ($2.23 billion) over the same period: a rise of just 6.7%. By adding Mr. Green to its holdings, William Hill can capture the growth potential of this fast-moving younger business.

Meanwhile, William Hill has predicted that its 2018 profits will be lower this year, and amount to somewhere between £225m-£245m, versus an operating profit of £291.3m in 2017. The company’s share price subsequently fell by 4% in early trading. William Hill laid blame for the weaker results on its betting margins on football and racing favoring punters, as well as its betting shops on the high street suffering similar challenges in wake of the UK’s fixed-odds betting terminal (FOBTs) crackdown.

Tougher U.K. Restrictions Impending

Perhaps giving further impetus to William Hill in pursuing the acquisition of Mr. Green are a couple of forthcoming changes to gambling laws in the United Kingdom.

The first is a reduction in maximum stake level for FOBTs from £100 ($130) down to just £2 ($2.60). These betting terminals are electronic gaming devices that simulate casino table games, like roulette and blackjack. They’re a fixture in British betting shops, which are allowed to host up to four of them at each location. William Hill has stated that the new FOBT bet limits may force it to close as many as 900 of its brick-and-mortar shops.

The other threat on the horizon is an increase in the Remote Gaming Duty from 15% to 21%. This is a tax charged on online poker, casino and other gaming revenue from customers in the United Kingdom regardless of where the operator’s head office is located. Sportsbooks are not included in the Remote Gaming Duty, instead falling under the provisions of separate taxing regimes, which is a bit of a silver lining for William Hill because its main focus is sports betting. Still, much of its internet gambling lineup will be hit hard.

Both the lowered FOBT maximum bet amount and the higher Remote Gaming Duty are slated to begin on Oct. 1, 2019. This information was delivered by Chancellor of the Exchequer Philip Hammond in his budget presentation on Oct. 29.

U.K. Driving Gambling Firms Away?

The latest alterations to the British online gambling landscape are merely the continuation of a trend that has seen the rules get ever stricter over time. Gaming businesses that wish to transact in the country must follow the demands of an alphabet soup of watchdog agencies, including the Gambling Commission (UKGC), Advertising Standards Authority (ASA), and Competition & Markets Authority (CMA).

William Hill itself has come under scrutiny from these bodies before. In February 2018, the bookmaker had to hand over £6.2 million ($8.1 million) as part of a penalty package for its failure to adhere to its social responsibility and anti-money laundering obligations. These obligations are defined by the UKGC and enforced in what some feel is a draconian manner. That same month, the ASA decreed that the company had to stop airing one of its ads because it contained allegedly misleading bonus terms.

With these kinds of rulings making it harder and more expensive for William Hill to service its customers within the United Kingdom, it’s no wonder that the company is looking to expand overseas.