William Hill float shunned by investors

THE FLOTATION of William Hill, Britain's second-largest bookmaker, experienced an embarrassing stumble at the final hurdle yesterday when it was forced to cut the price of the offer due to weak institutional demand.

The price of the shares has been cut to 135p, well below the expected range of 155p-175p. The reduction values the business at just pounds 405m, or pounds 780m including debts. This compares with previous forecasts of pounds 900m. The price cut means that Nomura, the Japanese securities group which paid pounds 700m for the business less than two years ago, will make a profit of just pounds 80m on the deal, excluding expenses, compared with previous estimates of almost pounds 200m.

The flop of the float will be a blow to the new issues market which is only just finding its feet again after the huge volatility in stock markets last year led to a buyers' strike among investors.

The poor response to the bookbuilding exercise undertaken by financial advisers Warburg Dillon Reed was attributed to a lack of demand for anything other than large, blue chip stocks.

However, institutions who spurned the offer said the presentations by the William Hill management team had been "pretty unconvincing". One said: "They did not seem very clear on the reason they wanted to list. One was left with the impression that it was because Nomura wanted to sell having decided they were not going to make much more progress."

Another fund manager said: "William Hill as a business is not desperately exciting. They had a good period on the back of the World Cup but where is future growth to come from?"

There were also suggestions yesterday that William Hill, which last year had sales of around pounds 1.5bn, has experienced poor trading in the past few months. This period was not included in the group's listing particulars which revealed operating profits of pounds 75.2m in the 39 weeks to 29 September. The company denied a slump in trading yesterday.

During the flotation process William Hill has focused on its strong brand name and reliable earnings outlook from betting and gaming. However a sharp fall in consumer spending in the past few months may have taken its toll in a market that is traditionally less exposed to the vagaries of discretionary spending.

The price cut may be a blow to smaller investors whose allocation was last week doubled to 20 per cent of the capital. They had to subscribe to a minimum of pounds 1,000 in shares and it is thought that many subscribed for more because they thought their holding would be scaled back due to strong demand. Now they will be buying more shares than they expected.

Dealings in the stock are due to start on 1 March.