William Hill and Amaya in £4.5bn merger talks

Over the weekend news broke about a potential merger between PokerStars operator Amaya and British sports-betting giant William Hill.

Initial merger discussions between the FTSE 250 UK betting company and Canada’s Amaya have been confirmed by William Hill. If the deal were to complete the merger its value would eclipse any of the online operator mergers the industry has seen previously, including GVC-bwin.party and the to-be-completed Ladbrokes-Coral deal.

The potential merger business would also be the largest global online gamin operator by EBITDA and second largest by revenue.

"The potential merger would be consistent with the strategic objectives of both William Hill and Amaya and would create a clear international leader across online sports betting, poker and casino," William Hill said.

Talks are preliminary and non-binding, so no agreement may be reached, as private equity firms are said to be considering Amaya.

Amaya, as the operator of PokerStars, is currently valued at approximately £1.9bn after shares rose by a third this year.

William Hill is currently valued at just under £2.6bn after shares fell in value by a quarter since January. In August William Hill reported a 16% fall in operating profits to £131.1million attributed to problems with its online business.

The talks follow 888 Holdings and Rank Group abandoning a £3bn merger after two non-binding proposals were rejected by William Hill in August.

Analysts at Morgan Stanley report “a nil premium merger would create a £5.7bn UK listed market cap business, and the global leader in online gambling”.

The same report highlighted cost synergies of £60m-£150m, revenue synergy potential, and international diversification as key reasons William Hill should be positive about the deal.

However, increased exposure to unregulated markets and the flagging online poker vertical were two factors of the deal Morgan Stanley were negative on from William Hill's perspective.

The price of the premium William Hill would be paying (11.7 x 2017e EBITDA) and poor timing (William Hill is currently without a CEO to oversee the integration of the two companies) were also regarded by Morgan Stanley as negative factors.