Hills' Italian J.V. Sold, 'Bigger Priorities for Capital,' F.D. Says

Upon weighing the risks against the rewards, William Hill and its joint venture partner, Grupo Codere S.A., have sold their entire company, William Hill Codere Italia Srl, to Intralot Italia spa for 5.5 million euros.

Simon Lane, group finance director for William Hill, told Interactive Gaming News that the decision to sell the business was more a matter of circumstance than a fundamental dislike of the market.

"We like the Italian market, per se," Mr. Lane said in a telephone interview. "There is a history of sports betting in Italy. The existing licenses that have existed for a number of years there -- before this latest round of licensing -- these shops are trading extremely well. The market is fine."

However, the uncertain regulatory framework and the low number of licenses the company had been granted forced the company to reconsider its investments in the country and refocus its energy and money.

"Having gotten 55 units and thinking we needed 200 or 300, you're talking about deploying a lot of capital in a fairly uncertain environment to get up to something that's meaningful," Mr. Lane said. "And I think we just felt we had bigger priorities for our capital. We've got a Spanish business and a good partner in Codere. We're spending money revamping our sportsbook systems. We're looking to grow our gaming business, and so on."

William Hill Codere Italia was formed in December 2006 after the Italian Council of Ministers enacted a law decree that included measures to liberalize and deregulate some of the country's gaming and betting industries.

Mr. Lane explained that the company came to terms with the reality that it wasn't going to have a large enough presence in Italy and, after exploring other options, decided to let go of the properties.

"It becomes a question of execution and making a significant business with significant profits from a standing start," he said. "And our standing start was going to be that we were going to end up making a very small footprint."

The sale includes all of William Hill's Italian licenses, including the Internet license and the premises, some of which are partially built.

For Intralot, the sale boosts its presence from 580 to 635 Italian licenses. For William Hill, the sale will result in the write-off of roughly £1 million of its interim accounts after accounting for operating losses in 2007 and to the date of disposal in 2008.

However, Mr. Lane doesn't seem worried about the loss.

"In the end of the day it's not a huge write off," he said. "We might live to regret it, but I doubt it."

Meanwhile, in Spain, William Hill and Codere have opened eight locations, but Mr. Lane said it is early yet to begin quantifying the success of the business in the region.

However, the joint venture has plans to expand its presence in Spain.

"We anticipate having 50 or 60 units," Mr. Lane said. "Some of them will be third-party owned -- an arcade with a betting screen. Some will be shops that are 100 percent owned by the J.V. We will then have enough of a data set to decide whether this is going to work out over a period of time."

It is not clear what effect the dissolution of the Italian joint venture will have on investor confidence. Well-known is the fact that Hills' shares have underperformed and, since October 2007, lost 58 percent of their value.

Moreover, the company's chief executive, Ralph J. Topping, told IGN he is keenly aware that his company's shares trade at a discount to Ladbrokes.

"In our view the present valuation captures neither the current solid underlying trading of the group’s core UK retail operation (81% of 2008 EBIT) nor the future potential from a revitalised online offering and international expansion," Richard Carter and Wyn Ellis, analysts with Numis Securities, observed in a May 2008 research note.

Simon Holiday, a partner with Global Betting and Gaming Consultants, told IGN on William Hill's interim management statement in May that its business model -- which covers the land-based and Internet markets -- "will ensure that [its] a winner in the long term."

On the London Stock Exchange today, William Hill, with a market capitalization of £975 million, closed down 20 pence, or 6.65 percent, to 280.75 pence.

Christopher A. Krafcik contributed reporting.