Takeover bids are usually good news for a stock. Offering a premium to market price means current shareholders benefit. Meanwhile, the fact that a company sees value in another is a good sign for it more fundamentally. It was natural then, that the William Hill (LSE: WMH) share price jumped more than 40% when news emerged that Caesars Entertainment was interested in the company.
At the time, this was particularly positive as the company had already seen interest from Apollo Global Management. The problem for fresh investors now however, is that the William Hill share price no longer offers any premium.
An offer you can’t refuse
It may seem strange that a casino giant like Caesars Entertainment could be interested in a humble British bookmaker. For some of us, it’s hard to associate the glitz and glamour of Las Vegas with the smoke-filled rooms of the local bookie.
But the interest comes about after legislation changes in the US a few years ago that legalised sports betting. Rather than trying to build this new industry themselves, US firms have imported that model ready-made instead.
Caesars already had a joint venture in place with William Hill. This allowed the bookie exclusive rights to sports betting in its casinos in exchange for a 20% stake in William Hill’s US arm. But this joint venture causes shareholders a potential problem.
Caesars has said that if it accepts an offer from rival Apollo, it will cut its venture with the UK bookmaker. This in effect has allowed it to offer a muted bid, low-balling the William Hill share price. Yes, the £2.9bn offer was an 81% premium to the three-month average share price, but almost all analysts agree this is low.
William Hill share price: further room to rise?
The William Hill share price has been trading above Caesars’ 272p offer price all week. This is natural, given that Apollo has also shown interest and online gambling company 888 is interested in William Hill’s European business if a deal goes through.
Unfortunately though, William Hill’s JV with Caesars may consign other offers very much to the back seat. Losing its sports book presence in the US may not be worth the hassle.
Indeed, the William Hill board has recommended to shareholders that they accept the Caesars offer. For it to go through, 75% of shareholders will need to approve the deal.
Most analysts agree the bid falls somewhat short of its true value, it is hard to see how the company has much choice. Add the fact that the future of its UK and European businesses would see greater uncertainty, I think this is a stock worth avoiding for now.
If we had got in a few months back we may have made some money here, but for me the William Hill share price is just not offering much potential upside today.
