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Caesars Cake Eaters

A possible purchase of William Hill gives gaming’s largest company even more leverage.

Caesars Cake Eaters

Whoever said you can’t have your cake and eat it, too, apparently didn’t know Caesars CEO Tom Reeg and the other former Eldorado guys now running Caesars.

Their proposed purchase of U.K. sports betting giant William Hill puts Caesars in a can’t-lose position.

If Caesars acquires William Hill at its offered 272 pence a share, it will have acquired a company that Jefferies equity analyst James Wheatcroft says is worth 350 to 500 pence.

Another analyst, Steve Wieczynski of Stifel, has neatly outlined the situation:

Caesars buys William Hill then sells the non-American operations, keeping the U.S. portion that Wieczynski values at up to $10 billion. That would allow Caesars to pay down any debt associated with the transaction and gain an equity value greater than the 18 percent dilution that comes from selling stock to help finance the purchase.

If someone comes in and outbids Caesars for William Hill, Caesars still would benefit because it could renegotiate the terms of its sports betting deal with William Hill US on more favorable terms. That is because their joint venture was negotiated before Eldorado bought Caesars and gained access to its casinos throughout the United States and its industry-largest database of more than 60 million players, Wieczynski reasons.

And access to Caesars’ network and its media contracts are why William Hill US would be attractive to a potential buyer of William Hill PLC in the first place. In other words, another buyer would not pay up to buy William Hill and then walk away from its deal with Caesars.

Wieczynski has been perhaps the most consistent bull on Caesars among sell-side analysts, extolling Reeg and his management team as the best in the business and expressing confidence that he will meet and exceed the goal of $900 million in synergies from the Eldorado-Caesars merger.

In his most recent research note, Wieczynski raised his stock price target on Caesars to $80, attributing $28.02 of that to the William Hill US-Caesars sports betting and iGaming operation based on his 2024 EBITDA forecasts.

However, that opportunity is $32.44 a share factoring out the discount that Wieczynski applies for uncertainty of the deal being realized.

Wieczynski has consistently said that Caesars stock could be worth more than $100 a share if it achieves $10 a share in free cash flow—and that was before the added EBITDA a wholly owned William Hill US would contribute.

To Reeg, online sports betting and online gaming is the biggest opportunity in the gaming industry since riverboats were legalized in the central and south-central United States in the 1990s. To illustrate, he notes the latest third-party estimates of research firms that see a $30 billion revenue opportunity when online matures.

To capitalize on that opportunity and build a national sports betting network was the reason Eldorado signed its partnership with William Hill, Reeg says.

Then the opportunity to buy Caesars came along. Now, the online opportunity was enhanced by Caesars’ industry-largest player database and media deals with the likes of ESPN. The Eldorado, William Hill and Caesars combination, in brief, presents Caesars with the chance to garner significant market share in that potentially $30 billion industry.

In other words, Reeg says, buying William Hill is about “controlling our own destiny.”

Journeys

These must be heady days for Reeg and William Hill US CEO Joe Asher.

My first meeting with Tom Reeg was sitting just outside Brew Brothers pub in Eldorado Casino in Reno, then the flagship of the small company that had recently gone public. He was CFO.

Tom was, as he has remained, a modest guy who speaks in plain American English in outlining strategy and finances. Eldorado stock was in the mid-single digits. Today, Caesars stock trades in the upper 50s on its way, as Wieczynski says, to $80 and higher. The market cap is nearly $10 billion and should go much higher.

Asher also has come a long way. Growing up in Delaware, the avid young sports fan managed to become a race caller at Harrington Raceway as a teenager, the youngest race caller in America.

Later, as a young attorney with bond house Cantor Fitzgerald, Asher, with Cantor’s proprietary mobile trading device in hand, was assigned to go to Nevada and lobby to legalize mobile betting. That happened, and Joe stayed in Nevada to head a new company, Cantor Gaming.

Joe then went off on his own, starting Brandywine Gaming, which ran sportsbooks for small casinos under the Lucky’s brand. When William Hill decided to enter the United States for the potential of exactly what we are seeing today, it bought Brandywine and appointed Joe CEO of its U.S. operations.

Now, Joe heads a business that Steve Wieczynski thinks is worth $10 billion.

That’s a lot accomplished by two guys who are still young by CEO standards.

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