888 Holding plc (LSE:888) today confirmed a "Sunday Telegraph" report that bookmaker Ladbrokes plc (LSE: LAD) "is in the early stages of discussions in respect of a possible transaction involving Ladbrokes". The company added, "At this stage there can be no certainty that these discussions will result in a formal offer being made for the company."
888's share price rose 18.4% in London today to ₤0.59, giving a market cap of ₤169 million.
"Sunday Telegraph" said that Ladbrokes offered ₤240 million for 888, at ₤0.70 per share, a 61% premium on 888's share price on Thursday. Rumors of the deal began on Friday, driving 888's share price up 13%. The offer is barely half of 888's market cap at the beginning of the year and at its IPO value five years ago.
Although Ladbroke's premium seems tempting, it is not certain that it will tempt 888's controlling shareholders Avi Shaked and the heirs of the late Aharon Shaked. The company has had better days, and traded at higher valuations, and while the company's current figures do not justify the premium, it is not clear whether the Shakeds will be willing to sell at half price.
Moreover, 888 is the family's main source of income. Even in its current condition, and even after a temporary halt in the distribution of dividends, it is a cash cow, albeit a sick cow, so it is not certain that the Shakeds will give it up.
There is a reason why Ladbrokes and other companies want 888. The company is the world's largest online casino operator, and its brand is the strongest in the UK, Ladbroke's home turf. Although 888 has lost its gloss for now, it is still one of the top companies in its business, and a when a good company with a strong brand is traded at bargain prices, it is no wonder that competitors are drooling for it.
The online gaming industry has been facing consolidation in the past few years. There are too many companies in the highly competitive industry, regulation does not make life easy, and companies try to join forces. Nonetheless, consolidation has not really taken hold, and while large companies have acquired some small ones, no major mergers appear on the horizon.
Last summer, PartyGaming plc (AIM: PRTY), the worlds largest online poker company, and bwin Interactive Entertainment AG (DAX; ATX: BWIN), one of the world's largest online sports betting companies, are merging, shaking the ground beneath their rivals' feet. The merged company could devastate other companies in the business, and could be a consideration for the Shakeds to sell 888.
Ladbrokes, founded in 1886, has been trying to leverage its online gaming activity for a long time. The company is based on betting shops across the UK, and is tempted by the thriving online gaming business, which is why it wants 888.
Furthermore, Ladbrokes' online business is considered the weakest among its peers, such as William Hill plc (LSE: WMH), which linked up with Playtech Cyprus Ltd. (AIM:PTEC) two years ago to establish an online presence. The move is considered a winner by both companies.
Playtech, controlled by Teddy Sagi, has a market cap of ₤1.01 billion, and despite a common denominator with 888, there is little chance of a merger between them. Firstly, Playtech provides a platform for online operators such as 888, and does not want to become an operator itself, which could affect its profitability. Secondly, Sagi and Shaked family have a very bad personal relationship.
Published by Globes [online], Israel business news - www.globes-online.com - on December 20, 2010
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