It is understood that William Hill has reached a preliminary deal with 888 for 210p per share, which values 888 at 744.3m. However, it has also been reported that one of 888s founding families is holding out for an offer of 300p per share, a full 105% above yesterdays closing price.
It is understood that William Hill is looking to acquire 888 in order to bolster the companys online presence. But 888 has been a possible takeover target for some time now and theres a chance that William Hill could find itself entangled in a bidding war. Indeed, several private equity firms have expressed interest in 888 over the past year andLadbrokes has looked at the group.
Unfortunately, theres little information regarding the deal as of yet, so its difficult to assess the possible outcomes. Nevertheless, on the face of it, this seems to be a prudent move by William Hills management. The company already has a strong online presence and a move to acquire 888 will boost the groups customer base. And its not as if William Hill is struggling to grow.
The company reported record results forthe 52 weeks to December 30. Profits jumped 11% year-on-year to 371m as revenue expanded 8%. Whats more, for the period the companys online arm reported double-digit earnings growth of 18%, despite what the company called customer friendly results.
Priced for growth
Investors are willing to pay a premium for William Hills growth so, unfortunately, the company looks expensive at present levels. Additionally, its difficult to try and predict the companys future performance as profits are unpredictable and highly dependent upon company friendly results.
For example, over the past five years William Hills earnings per share have risen by around 50%. However, earnings per share peaked at 29.3p during 2012 and have remained below this level ever since. Moreover, City analysts believe that earnings will fall by roughly 7% during the next three years.
And at present levels, William Hills shares currently trade at a forward P/E of 13.1, rising to 15.3 next year. Of course, these estimates exclude any benefit from the merger with 888.
The bottom line
Overall, William Hills offer for 888 is great news for 888s shareholders. William Hill is offering a significant premium to the current share price.
Still, as always, it remains your decision whether you buy, sell or continue to hold William Hill or 888 following this news. I strongly recommend that you do your own research before making any trading decision. To help you assess the company, our top analysts have put togetherthis new report from The Motley Fool.
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