Shares in 888 Holdings (LSE: 888) shot higher last week on news that William Hill (LSE: WMH) had launched a 203p per share bid for the firm.
Today, 888 shares opened down by nearly 15% after the firm admitted that the deal was off, as one of 888s major shareholders thought to be one of the firms founders had refused to accept William Hills offer.
The bid was seen by most analysts as pretty generous, valuing 888 on around 14 times earnings before interest, tax, depreciation and amortisation. Indeed, even after todays sharp fall, 888 shares are still trading on 17 times 2015 forecast earnings.
That looks enough, to me, especially given that a significant proportion of 888s online gaming revenue is thought to come from areas of the US where online gambling is not currently legal a potential headache for anyone acquiring 888.
Two of 888s biggest markets poker and bingo were described by the firm was low growth and mature respectively in last years interim results, leaving 888 dependent on sports betting for growth an area where William Hill should surely be able to hold its own.
Is William Hill a better buy?
William Hill would probably have struggled to afford to pay more than its initial offer for 888, but I think the firms management should be praised for resisting the temptation to overpay.
William Hill is responding to rising tax and regulatory headwinds in the UK with strong overseas expansion, and is in the process of transferring recent acquisitions such as Sportingbet to the William Hill brand.
The firms strong historic presence in the UKs sports betting market should position it well to maintain long-term market share.
Although William Hill is reliant on fellow FTSE 250 member Playtech for its online technology, I dont believe this is a major weakness, given the proven quality and popularity of Playtechs product.
Should you raise your stake today?
William Hill isnt exactly cheap, but shareholders may yet be grateful that the firm avoided the injection of debt or equity dilution that would have been required to fund the purchase of 888.
Trading on a 2014 forecast P/E of 13.0 and a prospective yield of 3.2%, William Hills valuation is more appealing than the FTSE 250 average of 19.4 and 2.5%, in my view and I believe the bookmakers shares represent a decent medium-term bet.
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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.