Caesars Warns William Hill on Accepting Apollo Bid, Says $3.7 Billion Offer is Adequate

Posted on: September 28, 2020, 09:27h. 

Last updated on: September 28, 2020, 11:18h.

Caesars Entertainment (NASDAQ:CZR) is playing hardball with William Hill (OTC:WIMHY), telling the sportsbook operator that its $3.69 billion takeover offer is sufficient. Caesars says if the UK-based company opts to be acquired by Apollo Global Management (NYSE:APO), the gaming company’s US relationship with the bookmaker could be terminated.

Caesars William Hill
Caesars CEO Tom Reeg, seen here in 2018, isn’t shy about playing hardball in an attempt to acquire William Hill. (Image: Associated Press)

Reports surfaced late Sunday that Caesars and its sportsbook partner are in advanced discussions on a combination. The Harrah’s operator is offering a 25 percent premium to where William Hill’s London-listed shares closed last Friday. That was the day the bookmaker’s US-listed shares spiked on news it was mulling overtures from the casino operator and private equity firm Apollo.

Although that’s a healthy premium, investors are disappointed William Hill isn’t commanding a higher price, and that dejection is palpable, as the British company’s US equity is lower by more than 12 percent at this writing.

Caesars is leveraging its relationship with William Hill, whereby the latter runs the former’s sportsbooks across the US, threatening to end that lucrative arrangement if the target agrees to be acquired by Apollo. For its part, Caesars appears confident it will emerge victorious, saying earlier today it will issue up to 34.5 million shares of stock, proceeds of which could be used to fund the purchase of the sports betting company.

The company expects to use the net proceeds from the offering for general corporate purposes, including, potentially, the previously announced possible cash offer for the entire issued and to be issued share capital of William Hill plc,” according to the casino giant.

Through a series of dealmaking, William Hill is the largest sportsbook firm in the US and the third-largest online operator. Its arrangement with Caesars entitles it to run books at more than 50 properties across 16 states.

Playing Hard Ball

Caesars and William Hill have a long-standing agreement that dates back to Eldorado Resorts – the company that bought “old Caesars.” That accord allows the UK company to run sportsbooks at any venue Eldorado, now Caesars, acquires. Caesars collects 40 percent of the economics in that pact and owns 20 percent of William Hill’s US business.

So the gaming company has cards to play and it’s playing them. As part of that agreement, Caesars has the right to add or substitute names to a list of potential buyers of William Hill that if the sportsbook accepts a deal from one of those suitors, it would effectively end its arrangement with Caesars. Caesars placed Apollo in that group.

“If Apollo subsequently acquires William Hill, Caesars would be entitled to terminate the US joint venture’s mobile market access rights and rights to operate sportsbooks at Caesars’ premises that are granted to it by Caesars,” according to The Fly.

Roth Capital analyst David Bain, who’s enthusiastic on Caesars stock, said in a note to clients today that the specter of William Hill losing its Caesars relationship is likely to factor into any offer Apollo could make for the company.

Good Deal For Caesars

Assuming Caesars emerges victorious in its quest for William Hill, it would be a favorable move for the buyer. At $3.7 billion, the current offer is $100 million less than what “old Caesars” reportedly floated to William Hill in 2019 takeover talks that eventually fell apart.

Bain adds that Caesars would get the 80 percent of William Hill’s US operations it doesn’t already own for a tidy discount relative to its value.

“We value the remaining 80 percent of William Hill USA that CZR does not currently own at ~$10.4 billion and believe the remaining businesses of William Hill (non-US online and UK retail) could be divested for ~$2 billion, inferring CZR could acquire $10.4 billion of value for $1.7 billion, adjusted for those divestments,” said the Roth analyst.