With William Hill and Amaya next in line for merger rumors, the first question to ask is, Is this a merger for the sake of merging, or does it actually make sense? The other questions: Will it actually happen? Is either Amaya or William Hill a Buy now? First impressions, it doesn’t look like the proposed merger is solely for the sake of merging, but that seems to be at least some part of it because that is the current atmosphere in the UK gaming market. There is some sense to it, but it’s not a very compelling and obvious case. Will it actually happen? I’d say the chances are 55-45 yes, depending on whether or not an $870 million fine on PokerStars is enforced. More on that later. Is either Amaya or William Hill a Buy now? Amaya no, absolutely not. Sell it now. William Hill is safer to buy on a gamble that the deal goes through, but it’s not that great a position to take.
We took a 5% position in Amaya for the model portfolio way back in February at $13.28 a Nasdaq share on a positive Super Bowl betting indicator and speculation that David Baazov would take the firm private for C$21 a share. That didn’t happen but effectively the same thing happened and we are now at C$23.4 or $16.12 on the Nasdaq. That’s a 21.4% gain on a 5% position for a total portfolio gain of 1.1%. It’s time to sell and move on. The risk that this deal will not go through for whatever reason is high enough not to endanger gains already made.
Secondarily, this issue doesn’t come up often, but from a logistical standpoint for US Amaya Nasdaq shareholders and Canadian shareholders on the TSE, holding Amaya now would be difficult practically. If the deal goes through, William Hill would be the surviving entity and trade on the London exchange, and US and Canadian shareholders (or any non UK shareholder) whose brokerages do not support international exchanges would be stuck either converting to the very low liquidity OTC shares WIMHY or WIMHF which is not even an option for some specialized accounts that forbid OTC securities, or being forced to cash out anyway, or who knows what. So might as well sell now while you can.
As for the deal itself, there are two compelling features to it. The biggest is the cross-selling opportunities for Hill, a firm that has been struggling mightily with its online growth. Having access to PokerStars clients would beef up digital efforts, at least temporarily at the beginning. After that it depends on customer retention, something that is not assured. Secondly, it looks like Amaya CEO Rafi Ashkenazi would take over the helm, and William Hill could use some fresh new blood at the top. Can he provide the direction needed? Hard to know, but it would be difficult to do worse.