Shares in UK book maker William Hill (LON:WMH) are seeing huge demand as the US casino owner Caesars Entertainment said that it was involved in an effort to buy the bookie. Caesars is not the only bidder, as private equity firm Apollo is also in the running.
The big question is exactly what the price will be. On Friday it was thought that directors of William Hill would be recommending an offer of 312p/share, valuing the company at £3.3bn. Since then Caesars has said it is offering 272p a share, which is well short of the original offer, and drove the William Hill price down again to 270p in early trading this morning.
Note that Caesars already has a 20% stake in William Hill. According to David Bain, an analyst at Roth Capital, even a 50-50 joint venture could be worth £6bn to William Hill.
Apo9llo Management International, the private equity firm which is also trying to buy William Hill, will be well known to investors in Asda, which it is also trying to buy. Apollo put an initial written proposal in front of William Hill on 27 August. Apollo is a buy-out specialist with $400bn in assets under management. Ironically it used to own Caesars Palace, the US casino, following its acquisition of Harrah’s Entertainment in 2006.
William Hill has been a widely recognised UK high street brand for decades. It originally saw life as a postal and telephone betting service in the 1930s, but opened its high street stores in 1961 after betting shops were legalised.
William Hill acquisition: is it all about the US market?
Like other gambling firms, William Hill has had its eyes on the much larger, and much more lucrative US market, which is being gradually deregulated. Its increasing presence in the US has been seen as one of its attractive aspects for possible US buyers.
While some investors have seen this as an undervalued play, example Fred Done, co-owner of Betfred who acquired 3% of the stock, others have shied away from it because of the impact of the coronavirus on walk in high street betting. William Hill said in August it was going to close 119 shops and merge its retail and online operations.
In its last statement William Hill noted that its international online business had grown 17%, furthering its strategic goals of both product and geographic diversification. Its media partnership with CBS Sports is now live and brings with it efficient US customer acquisition and access to the CBS fantasy sports database. It also said that, with the return of live sports, it would be able to refund £24m of furlough payments to the UK government.
William Hill looked like a COVID recovery play
William Hill had reported net revenue was down 32% due to disruption to sporting events by COVID-19. Gambling performance had remained resilient. Adjusted operating profit of £11.8m was ahead of expectations.
“Our trading was strong before COVID-19, we controlled costs effectively during lockdown, and we have recovered well post-lockdown with good performance in our online businesses throughout the first half,” said CEO Ulrik Bengtsson.
It certainly seems like the ideal time for buyers to emerge. William Hill shares were seen as undervalued by industry insiders, the market was still viewing the bookie as a long term recovery stock and is worrying about the impact of a longer recession on gambling revenues. It seems highly likely we will see a deal closed in the very near future, the only real question being the final price. Expect more volatility in William Hill stock this week.