Caesars has confirmed a $3.7 billion bid to acquire William Hill, with the US casino giant warning it could terminate the existing relationship between the two if the latter goes ahead with a rival buyer.
William Hill announced on Friday it had received competing offers from Caesars and investment giant Apollo Global Management.
However, Caesars seems to hold the trump card thanks to its existing partnership. William Hill operates all Caesars sports betting operations.
That provides a steady stream of revenue for William Hill. It also provides market access in numerous states and potentially the Caesars brand for any online gaming product.
However, Caesars has since added Apollo to a limited list of potential acquirers of William Hill. Caesars can now terminate the US joint venture with William Hill if the firm is acquired by Apollo.
Strategic rationale for Caesars and William Hill
In a statement, Caesars said its offer was high enough that the William Hill board was likely to recommend it to shareholders.
“We believe that acquiring William Hill would improve the customer experience and profitability as compared to our existing joint venture with William Hill in the US, which is complex and undervalued by the market to the detriment of our existing stockholders,” Caesars said.
According to a prospectus, the deal rationale includes:
- Unified wallet and customer experience across sportsbook and online casino.
- Chance for William Hill to cross-sell to Caesars rewards database.
- Broader market access.
- Improved attractiveness as a potential partner for media companies.
The US business is the prize
Caesars also said it would sell off William Hill’s non-US assets.
“Our strategic focus remains on the opportunities in the U.S. market at this stage,” the company said.
To finance the acquisition, Caesars is issuing 30 million new shares, worth around $1.7 billion. Caesars will raise the remaining $2 billion via debt, secured against Hill’s non-US business.
William Hill shares were down 10% to 280 pence this morning, and that’s after a 40% leap on Friday when the offers were first announced. The CZR offer comes in at 272p per share.
The looming transaction also highlights the market perceptions of sports betting companies either side of the Atlantic — and the value of switching between them.
On a revenue multiple basis, William Hill is currently trading at 2.2x, even after the CZR offer. Meanwhile, DraftKings is at 34x its 2020 revenue expectations.
Third Bridge analyst Harry Barnick noted: “With regulation being determined on a state-by-state basis, Caesars’ large existing footprint in the US will put William Hill in a strong position to capitalize on the changing market landscape.”