Caesars in Advance talks to Acquire William Hill for 2.9 Billion Pounds; Target Price $75 in Best Case

Caesars Entertainment, a gaming and hospitality company, is in advance talks to acquire a London-based bookmaker William Hill in a deal that would value the bookmaker at 2.9 billion pounds, sending shares up over 4% on Monday.

Caesars was considering offering 272 pence per share and William Hill’s board was inclined to recommend such an offer to shareholders, the companies said on Monday. William Hill shares on Friday surged to a two-year high above 312 pence after it said it had received separate offers from Caesars and buyout group Apollo, Reuters reported.

Following this announcement, Caesars Entertainment shares surged about 4% on Monday. However, the stock is down over 1% so far this year.

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

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

Caesars Entertainment stock forecast

Ten analysts forecast the average price in 12 months at $54.70 with a high forecast of $75.00 and a low forecast of $12.00. The average price target represents a -6.32% decrease from the last price of $58.39. From those 10 equity analysts, seven rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley target price is $54 with a high of $94 under a bull scenario and $22 under the worst-case scenario. JP Morgan upped their price target to $63 from $55; Truist Securities raised the target price to $70 from $50; Deutsche Bank increased their stock price forecast to $65 from $50 and Stifel raised their target price to $67 from $63.

Analyst views

“Regional casino markets (60% of mix) are recovering quickly from COVID-19. Vegas (40% of mix) recovery will take longer, but Caesars’ (CZR) has preferable exposure there (lowest convention mix, highest gambler). Vegas can be a meaningful vaccine play,” said Thomas Allen, equity analyst at Morgan Stanley.

“We expect CZR to achieve >$900 million of targeted synergies and grow top-line faster than peers as casino markets recover. We see an opportunity for Caesars to monetize its underappreciated sports betting and online gambling assets and sell a Las Vegas Strip asset (2 recent trades there at accretive multiples). On our PF 2021-2022 estimates, CZR trades at 8.5x EBITDAR, a slight discount to history, while not getting credit for its sports betting/iGaming opportunity.”

Upside and Downside Risks

Upside: 1) Regional gaming markets recovery quickly from COVID-19 headwinds. 2) Las Vegas gaming revenue recovers quickly. 3) CZR achieves more merger synergies than we expect, highlighted by Morgan Stanley.

Downside: 1) Less or no stimulus checks hurt demand. 2) Casino markets take a long time to recover, and CZR has high financial leverage. 3) Integration missteps on the CZR acquisition could be severely punished as this is a roll-up story.