William Hill may pass Ladbrokes as biggest loser from merger frenzy

Updated 1852 BST

William Hill shares closed sharply lower on Friday, after its first-half results missed market forecasts by just a fraction.

As the UK’s betting industry rushes ever more desperately to more digital models, investors signalled their view that WMH was getting left behind.

William Hill’s half-year performance was only a little light in terms of pre-tax profit forecasts (£78.7m vs. £121.8m last year).

But investors seemed unforgiving of the missed target and its surprise purchase of another online asset (this time in lotteries).

The sell-off of WMH stock by as much as 8% was partly down to it spending c. $1bn on acquisitions since 2013, followed by integration and accretion that hasn’t been best in class.

On the other hand, news on Friday afternoon that rival GVC sweetened its offer for Bwin, which has also received offers from 888, also hurt WMH shares.

That smaller, nimbler, digital-only players are fighting it out over an asset like Bwin, underscores the risk that WMH could fall even further behind in the race to scale-up online.

All this is coming ahead of Ladbrokes’s half-year numbers next week, when investors will also get an update on LAD’s progress in buying Gala Coral Group.

The odds that UK regulators will block the Ladbrokes bid appear to be low.

The industry’s exodus to online has brought about a more level playing field than when LAD attempted to buy Gala Coral in 1998, though takeover authorities are likely to demand that Ladbrokes or Coral sell some assets.

Either way, the enlarged group could eventually prove to be a more formidable rival to William Hill.

WMH’s own transition to digital has certainly picked-up steam, but it’s still missing some tricks.

Ladbrokes picked Jim Mullen—William Hill’s former head of digital—as CEO, in March.

WMH’s margin for error is tightening.

Therefore GVC’s increasing chances of owning one of the better poker-based Internet gambling brands, Bwin, will remind investors of William Hill’s own failed attempt to pick up a similar prize.

A takeover bid for 888 from William Hill fell through earlier this year, meaning all major UK-focused online and betting shop parties have lots riding on the eventual Bwin outcome.

GVC’s latest offer, its second improved bid in two weeks, is worth £1.03bn in cash and stock and follows a previous offer of about £1bn.

All gambling firms fear hits to profits from increasing taxes and tighter regulation of the industry in Britain.

Right now, investors in the sector are marking down William Hill the most, judging by its 7% fall on Friday.

Thomson Reuters’ UK Casinos & Gaming Index is down 3% so far this month, after rising 10% in the year-to-date, largely with the help of Rank Group, which is up 50% year-to-date.

Ladbrokes is down 12% in a month and, William Hill has lost 1%.