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William Hill investors shouldn’t look Caesars gift horse in the mouth ahead of UK’s gambling law review

Caesars proposes to offer 272p or £2.9bn to buy the British bookmaker.

William Hill PLC - William Hill investors shouldn’t look Caesars gift horse in the mouth ahead of UK’s gambling law review

Las Vegas casino operator Caesars has seemingly made William Hill PLC’s (LON:WMH) board an offer they can’t refuse and amidst ever-increasing regulatory scrutiny perhaps UK investors shouldn’t refuse it either.

William Hill shares fell around 10% on Monday as Caesars announced its possible offer, which if/when it is made, will be pitched at 272p per share or £2.9bn in total.

At the same time, Caesars potentially spiked a rival approach from Apollo by threatening to cancel its American partnership with William Hill if the private equity firm were to acquire the British bookie.

READ: Caesars pitches William Hill takeover at £2.9bn

That would see William Hill lose its access point into the US mobile betting market along with its rights to operate sportsbooks at Caesars’ casinos.

Stockbroker Peel Hunt described the threat as “an extremely effective poison pill” that is likely to deter competing bidders.

William Hill’s board has already indicated to Caesars that the £2.9bn deal value is at a level at which “they would be minded to recommend.”

Whatever the board recommends and, indeed, whatever William Hill shareholders accept it will be a crossroads moment for the company, not least because the strategic and regulatory changes that are afoot in the industry.

America is steadily opening up for online gambling. This has been an ongoing investment theme for many years and that arguably the most iconic name in Las Vegas may soon stand-over one of Europe’s largest betting brands marks this validation.

Pending blight in Blighty

At the same time as America warms up to online betting, UK regulators are putting the industry under stricter scrutiny.

Only last week it was reported that Downing Street had ‘taken control’ of an upcoming review of gambling legislation.

Boris Johnson and his advisors want to reform the industry, according to The Guardian, which added that the Prime Minister was now steering the planned review.

The government’s Department of Digital, Culture, Media and Sport (DCMS) is due to launch the review that seeks to reform the 2005 Gambling Act.

Rumoured changes could include new restrictions on advertising, while other cross-party campaigners have sought potential focal points such as stake limiting or limiting the frequency of bets, along with demands for tighter controls on customer affordability checks.

A premium-priced takeover offer from an American company with a focus on American business, leaves William Hill and its shareholders with an opportune chance to exit.

With a rival bidder now suddenly seen as unlikely, the bookmaker risks looking a gift horse in the mouth if it is to quibble over price.

A future of growth in the United States

Following its July 2020 acquisition of Eldorado Resorts, Caesars owns and operates 54 US casinos – with an aggregate of 64,000 slots, 3,000 gaming tables across 4mln square feet of ‘gaming space’ plus 300 on-property restaurants and bars, two signature nightclubs and 47,000 hotel rooms.

Nonetheless, Caesars believes sports betting and online gaming now are one of the largest areas of growth in the US gaming industry, with analysts pointing to US$30-35bn worth of addressable business.

Tom Reeq, Caesars’ chief executive, said: "The opportunity to combine our land based-casinos, sports betting and online gaming in the US is a truly exciting prospect.”

William Hill currently owns 80% of the partners’ venture and Caesars claims that the current partnership needs to broaden in scope to fully maximise the opportunity.

Caesars reckons sports and online gaming can generate US$600-700mln of net revenue for the business, including the iGaming unit, which is separate to the William Hill tie-up.

Reeq added: “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."

Quick facts: William Hill PLC

Price: 279 GBX

LSE:WMH
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Market Cap: £2.93 billion
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