The new CEO at 888 Per Widerström faces a monumental challenge.
It is an understatement to say that 888’s takeover of William Hill has not been a success to date. But it will be up to the new CEO to ensure the venture is not a complete failure.
From a high of 458p in the weeks after the deal was first announced, the shares have tumbled by 75% and at the time of writing were languishing at 114p. Before recent speculation earlier this year that former Entain CEO Kenny Alexander might be an unlikely white knight, the shares fell as low as 52p.
In terms of what counts for shareholders, the merger has been about as value destructive as it could have been. And while hindsight is always 20/20, a glance at the extensive literature on failed M&A shows many of the issues that have bedevilled tie-ups in the past have been clearly visible with 888 and William Hill.
The most obvious to outside observers is the debt burden. As of the end of 2022, 888 had net debt of £1.73bn, equivalent to a pro forma adjusted EBITDA ratio of 5.6x. Going into a rising interest rate environment, that leverage ratio was not a good place to be, especially with the majority of that debt at the time of the deal being subject to floating rates.
Then there was the regulatory flap at the turn of this year involving 888’s VIP operations in Gibraltar that led to the resignation of previous CEO Itai Pazner. To lose a chief executive under these circumstances is always painful, but that it occurred a matter of months after the deal was consummated was particularly damaging.
The loss of the CEO brings us to those factors behind a failed merger that from the outside we can only guess at. Poor integration, cultural differences between two organisations, overestimation of synergies and dilution of focus are the kind of stuff that CEOs are meant to deal with.
Without someone at the top doing the steering, it’s all too easy to imagine how the nuts and bolts of melding two different businesses together gets forgotten. Inefficiencies persist, rivalries break out into the open and disagreements over strategy lead to inertia.
All this will have ended up on the plate of chairman Lord Mendelsohn – but it was a piece of tableware that wasn’t meant for him.
Enter Widerström
Above all, Mendelsohn could probably have done without the distraction caused by the intervention of FS Gaming. The final full stop on that particular adventure came a matter of weeks before Widerström’s appointment and the announcement of a new CEO is merely the final nail in that particular coffin.
Widerström’s appointment also marks the point at which the company can hope to confound expectations from outside over its trajectory. In his statement, he noted that the combination of 888 and William Hill brought together a “world-class portfolio” of betting and gaming brands.
Yet, to make it the “clear global industry leader” that he spoke about, he will need to turn around not one, but two companies. The merger always felt somewhat defensive; two London-listed betting and gaming forms that were falling behind sector leaders Entain and Flutter, lacking a clear U.S. strategy and also struggling in their home markets.
Widerström will have to forge a new identity for a business combination where each party has lost its way. The debate over multi-brand strategies in the UK has long since been settled elsewhere in the sector, but achieving a successful dovetailing of 888 and William HIll in the UK is a priority.
As will be working out whether the U.S. is worth the bother. The SI Sportsbook venture couldn’t even really lay claim to being an also-ran right now, and a continuation of the project arguably will divert resources from actual profit centres.
These are the tactical decisions, but it will be the long-term strategy that Widerström will have to articulate in the coming weeks, first internally and then outwardly. This will be the first step in determining how successful he is in the task of turning the ship around.
None of this will be achieved in a vacuum. Another of the factors involved in value destructive M&A is what is happening outside the business; the industry dynamics in which the company has to operate.
Publicly at least, his task will be laid out at the company’s interim results on August 16. But privately, he will already be more than aware of the mountain he has to climb if 888 is to take its place among the top tier of global betting and gaming entities.
Which brings us to the last factor that, as Napoleon once famously said, any general needs – luck. It’s not unkind to suggest that not everyone in the sector will be wishing lots of that.
