n the US, sports-betting is legal under Federal law in Nevada, Delaware, Montana and Oregon. Nevada is, by far, the most significant with an estimated turnover of US$ 2.7 billion and gross win of US$ 151 million generated in 2010 from approximately 190 locations. AWI and Cal Neva operate sportsbooks in casinos and taverns throughout Nevada. AWI also supplies sportsbook technology to larger casino groups who manage their own sportsbooks.
AWI, which employs approximately 200 people, operates 72 sportsbooks and kiosks under the Leroy's brand, established in 1978. It has a track-record of innovation, having developed the first approved, purpose-built, computerized bookmaking system in Nevada and the first approved self-service, cash-based betting terminal.
Major casino operators in Nevada, including MGM Resorts, Wynn, Boyd Gaming, South Point, and Las Vegas Sands, currently license its proprietary technology platform. In the year to 31 January 2010, its revenues were US$ 14.8m and EBITDA was US$ 2.1m. William Hill is acquiring AWI for US$ 0.90 per share, which equates to US$ 9.4m on a fully diluted basis, plus the settlement of approximately $4m of debt and preference shares and the injection of a US$ 4.3m convertible loan to AWI; c$18m of enterprise value in total.
William Hill has the option to provide a further US$ 3 million of loans at its sole discretion. William Hill has received written consents approving the transaction from AWI shareholders who own the majority of AWI's voting share capital. No further approval of the AWI shareholders is required to approve and adopt the transaction.
William Hill is also acquiring the Cal Neva Sportsbook Division, which is a part of the Sierra Development Company, a privately-owned casino and hotel business. The Cal Neva Sportsbook Division, which currently operates 31 sportsbooks in Nevada and employs approximately 120 people, was established in 1989 and has a long track-record of profitable operation.
In the year to 31 December 2010, the business delivered estimated revenues of US$ 10.7m. William Hill will be paying $21.0m in cash, subject to working capital adjustments. A further payment of US$ 1.5m will be payable in the event that the Cal Neva Sportsbook Division achieves certain performance criteria in the 12 months to 29 February 2012.
Before completing the acquisitions, William Hill and certain William Hill senior managers are required to be licensed by the Nevada Gaming Commission. It plans to submit these applications shortly and the licensing process is expected to complete during 2012, after which point the transaction would legally complete. With the exception of the loan to AWI, payment for the transactions will be made only on legal completion. Should William Hill's gaming license application not be successful, it will incur break fees payable to AWI and Cal Neva of US$ 3.5 million in aggregate.
The consideration for the acquisitions, taken together, is approximately US$ 39 million. These acquisitions are expected to be marginally earnings enhancing (before transaction and integration costs and the amortization of intangible assets associated with these acquisitions) in the first full year of acquisition, which is expected to be 2013. The Group expects to incur $6m in transaction and integration costs during 2011 and 2012.
Ralph Topping, Chief Executive of William Hill, commented: "These acquisitions mark William Hill's entry into the strategically important US market, taking a leading position in sports-betting, which is firmly embedded in our DNA. AWI and the Cal Neva Sportsbook Division are well-established businesses with a large footprint throughout Nevada. We see significant opportunities for growth by investing in Nevada and arising from the combination of these businesses. We look forward to working with our new colleagues to enhance their offering with the breadth of our sports-betting content and technology.
"Together, we will be well-placed to take advantage of opportunities in sports-betting and other products and channels as they develop in the US. This transaction gives William Hill an experienced local management team, a route towards a Nevada gaming license, established regulatory and casino industry relationships and a highly competitive product offering. These acquisitions are only the start of our investments in the US market."
