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Caesars Entertainment in advanced discussions with William Hill

Caesars Entertainment Inc. (NASDAQ:CZR) and William Hill plc (LON:WMH) have confirmed that they are in advanced discussions concerning a possible cash offer for the entire issued and to be issued share capital of William Hill. Under the terms of the Possible Cash Offer William Hill Shareholders would be entitled to receive:

for each William Hill Share 272 pence in cash

The Possible Cash Offer values the entire issued and to be issued share capital of William Hill at approximately £2.9 billion and would provide William Hill shareholders with an opportunity to realise certain value in cash for their shares at a compelling price. The Possible Cash Offer represents a premium of approximately:

  • 57.6 per cent. to the closing price per William Hill Share of 172.55 pence on 1 September 2020 (being the last business day before Caesars’ first approach to William Hill);
  • 80.7 per cent. to the volume weighted average price per William Hill Share of 150.54 pence for the three months ended 24 September 2020;
  • 112.5 per cent. to the Placing price of 128 pence per William Hill Share on 17 June 2020; and
  • 25.0 per cent. to the closing price per William Hill Share of 217.60 pence on 24 September 2020 (being the day prior to the commencement of the offer period)

Caesars has finalised its due diligence and a further announcement will be made as and when appropriate. Should a firm offer be made it would be subject to approval of William Hill shareholders and customary antitrust and regulatory gaming approvals. Caesars expects that the transaction would close in the second half of 2021.

The William Hill Board of Directors has indicated to Caesars that the Possible Cash Offer is at a price level that they would be minded to recommend to William Hill shareholders.

Commenting on the Possible Cash Offer, Tom Reeg, CEO of Caesars, said:

“The opportunity to combine our land based-casinos, sports betting and online gaming in the US is a truly exciting prospect. William Hill’s sports betting expertise will complement Caesars’ current offering, enabling the combined group to better serve our customers in the fast growing US sports betting and online market.

We look forward to working with William Hill to support future growth in the US by providing our customers with a superior and comprehensive experience across all areas of gaming, sports betting, and entertainment.”

In accordance with Rule 2.5 of the Code, Caesars reserves the right to:

  1. vary the form and/or mix of the consideration described in this announcement; and
  2. make the offer on less favourable terms:

a. with the recommendation or consent of the board of William Hill;

b. if William Hill announces, declares or pays any dividend or any other distribution to shareholders, in which case Caesars will have the right to make an equivalent reduction to the proposed price;

c. if a third party announces a firm intention to make an offer for William Hill on less favourable terms than its proposal; or

d. following the announcement by William Hill of a whitewash transaction pursuant to the Code.

Update on Caesars and William Hill US joint venture arrangement

Under the terms of its established US joint venture agreement with William Hill, Caesars has the right to add or substitute names to a limited list of potential acquirers of William Hill (with William Hill having a reciprocal right), whereby inclusion on this list would entitle Caesars to terminate the US joint venture agreement should William Hill be acquired by one of these parties. Caesars has given notice of its addition of Apollo Global Management, Inc and its affiliates (“Apollo”) to this list with the effect that 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 sports books at Caesars premises that are granted to it by Caesars.

Background to and reasons for the Possible Cash Offer

Caesars is one of the largest gaming-entertainment companies in the US and one of the world’s most diversified gaming-entertainment providers. On 20 July 2020, the company completed its merger (the “Merger”) with Eldorado Resorts, Inc. Caesars owns and operates 54 domestic properties in 16 states with approximately 64,000 slot machines, video lottery terminals and e-tables, 3,000 table games, 4 million square feet of gaming space, 47,000 hotel rooms, 1.9 million square feet of meeting space, 300 restaurant and bar outlets and two premier nightclubs. The company’s resorts operate primarily under the Caesars, Harrah’s, Horseshoe, and Eldorado brand names.

Caesars believes that the sports betting and online gaming sector represents one of the largest areas of growth in the US gaming industry, with some analysts recently estimating a potential total addressable market size ranging up to US$30-35 billion, reflecting the acceleration of gaming legislation at the state level, the increased adoption by consumers as gaming becomes more available and continued integration with national sports and media brands.

Caesars and William Hill currently operate a US joint venture with 20% and 80% equity ownership respectively. Through this joint venture, William Hill runs online sports betting operations through Caesars’ market access in each state and retail sports betting operations in Caesars’ properties as well as those of other casino operators around the United States. Following completion of the Merger, Caesars and William Hill have been working together to roll out sports betting operations to the additional Caesars properties available to the joint venture.

Caesars believes that the current joint venture structure between Caesars and William Hill in the US needs to be broadened in scope in order to fully maximise the opportunity in the sports betting and gaming sector and provide the best possible customer experience.

Caesars believes that a combination of Caesars and William Hill represents a compelling opportunity to improve the offering and experience for the customer:

  • The combined company would be able to utilise the expertise and assets contained in both companies to better serve customers in the highly competitive online gaming and sports betting space throughout the US. The combined company’s market access across the US would be increased and would benefit from a broad network of sports books locations.
  • The combined company would provide a more unified customer experience by consolidating applications and wallets, and by allowing a more focused branding experience.
  • The combined company would have a world class portfolio of assets and brands, including William Hill’s sports betting expertise, as well as its established technology program and roadmap (including its highly regarded scalable and secure Liberty Technology platform).
  • The combined company will also be afforded the ability to access Caesars’ extensive and pre-existing relationships with dozens of sports teams and events including being the exclusive casino partner of the NFL.
  • Caesars believes that it is important to align with media companies to enhance customer acquisition and generate excitement and loyalty across multiple products. Currently Caesars has a multi-year relationship with ESPN and William Hill has a relationship with CBS. It is Caesars’ intent to pursue a more integrated arrangement with a media company (including with appropriate online partners for its US business) to further align interests and create an enhanced customer offering. Caesars believes the combination with William Hill will improve its attractiveness as a potential partner for such media companies.
  • Finally, as part of the combined company William Hill would be afforded new and complete access to Caesars’ brand and highly regarded loyalty program (which had approximately 60 million members at the end of 2019), which it currently does not have. We believe this synergistic relationship will benefit all customers with integrated benefits across various elements of gaming and entertainment, allowing customers to earn tier status and Caesars Rewards that can be used at all of Caesars’ land-based and online properties, helping to improve customer experience, reducing churn and increasing customer wallet share.

Together with iGaming, which is currently outside the scope of the joint venture, Caesars expects that the enlarged sports and online gaming business in the US could generate between US$600-US$700 million in net revenue in FY2021 (on a pro-forma basis).

Caesars’ strategic focus remains on the opportunities immediately evident in the US market at this stage. It believes in the compelling proposition that William Hill’s presence in the UK and other non-US international markets offers to their gaming customers in those markets and believes those businesses have a strong future. In order to best maximise those propositions and support those businesses’ long term ambitions following completion of the acquisition of William Hill, Caesars’ intention is to seek suitable partners or owners who have aligned objectives and approaches and who will be focussed on the longer term ambitions of those businesses and for the benefit of its customers.

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