European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<a href="https://www.smartkarma.com/entities/playtech-plc" target="_blank" data-smartkarma-citation="entities:22099:1" rel="noopener">Playtech Plc (PTEC LN)</a>'s shareholders have won big time at the casino table. On late Sunday 17 October, Playtech, a FTSE 250 white label gambling-technology company, said that it has agreed to a £2.1 billion takeover from Australian slot machine manufacturer <a href="https://www.smartkarma.com/entities/aristocrat-leisure-ltd" target="_blank" data-smartkarma-citation="entities:10303:1" rel="noopener">Aristocrat Leisure (ALL AU)</a> through its subsidiary Aristocrat (UK) Holdings Ltd. The acquisition is to be effected by means of a scheme of arrangement under Part X of the Isle of Man Companies Act 2006. Aristocrat's offer is its fourth bid, but the first one to be made public.
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Under the offer, accepting shareholders of Playtech will get 680p/share in cash, cum dividend, a 58% premium to the closing price of 429.20p on Friday 15 October.
</div>
The offer puts an enterprise value on Playtech of £2.7 billion. Gambling companies are rushing to profit off the deregulated gambling market in the USA, which is forecast to become one of the biggest betting and gaming markets in the world. The USA online gambling market was valued at USD 2,178 million in 2020, and it is estimated to have a CAGR of 17.34% during the period 2021-2026 (source: Mordor Intelligence). Online betting is expected to be the fastest-growing segment during 2021-2026. Software providers are embarking on M&amp;A to achieve consolidation and optimise their product portfolio. See <a href="https://www.smartkarma.com/insights/mgm-s-prospective-offer-for-entain" target="_blank" data-smartkarma-citation="insights:46752" rel="noopener">MGM's Prospective Offer for Entain</a> and <a href="https://www.smartkarma.com/insights/enlabs-entain-raised-offer" target="_blank" data-smartkarma-citation="insights:48838" rel="noopener">Enlabs - Entain: Raised Offer</a> and <a href="https://www.smartkarma.com/insights/draftkings-entain-cash-and-shares-approach" target="_blank" data-smartkarma-citation="insights:57963" rel="noopener">DraftKings/Entain: Cash and Shares Approach</a>. The Americas are driving the growth of Playtech.
The deal should allow Aristocrat to gain scale and increase offering in both Aristocrat’s casino business and the online sports betting market in the USA, where Playtech has recently expanded in response to more relaxed rules allowing online gambling and sports betting. Aristocrat expects to realise additional EPS in the high single digits in the first year after purchase.
Playtech's est. WACC is 9.2% vs a LTM ROIC of 4.6%. This means that the company destroys value as it grows. Aristocrat est. WACC is 9.6% vs. a LTM ROIC of 4.5%. Like Playtech, it destroys value as it grows. This may be the reason why Aristocrat is seeking scale.
I value Playtech using a SOTP model (gaming business valued at sector multiples and Financials business in line with financial trading peers and call options related to Latin America structured agreements at book value). My estimate of fair value is 590p.
Paraphrasing the Chairman of Playtech, the deal provides an attractive opportunity for shareholders to cash the chips. This is a done deal, as shareholders are highly likely to approve it, in my view. Gross spread is just 0.4%. I would wait for share price weakness before establishing a position.
Playtech was in the process of streamlining and divesting poor performing divisions (Finalto), thus becoming more attractive and the latest London-listed gambling company to be targeted for a takeover, as operators rush to build scale and break into the USA. 2021 has seen the takeover of <a href="https://www.smartkarma.com/entities/william-hill-plc" target="_blank" data-smartkarma-citation="entities:22210:1" rel="noopener">William Hill (WMH LN)</a> (<a href="https://www.smartkarma.com/insights/william-hill-caesars-almost-done-deal-trading-above-terms" target="_blank" data-smartkarma-citation="insights:43809" rel="noopener">William Hill - Caesars (Almost) Done Deal, Trading Above Terms</a>), and two attempts on <a href="https://www.smartkarma.com/entities/entain-plc" target="_blank" data-smartkarma-citation="entities:23926:1" rel="noopener">Entain (ENT LN)</a>.

Playtech Plc (PTEC LN)'s shareholders have won big time at the casino table. On late Sunday 17 October, Playtech, a FTSE 250 white label gambling-technology company, said that it has agreed to a £2.1 billion takeover from Australian slot machine manufacturer Aristocrat Leisure (ALL AU) through its subsidiary Aristocrat (UK) Holdings Ltd. The acquisition is to be effected by means of a scheme of arrangement under Part X of the Isle of Man Companies Act 2006. Aristocrat's offer is its fourth bid, but the first one to be made public.

Under the offer, accepting shareholders of Playtech will get 680p/share in cash, cum dividend, a 58% premium to the closing price of 429.20p on Friday 15 October.

The offer puts an enterprise value on Playtech of £2.7 billion. Gambling companies are rushing to profit off the deregulated gambling market in the USA, which is forecast to become one of the biggest betting and gaming markets in the world. The USA online gambling market was valued at USD 2,178 million in 2020, and it is estimated to have a CAGR of 17.34% during the period 2021-2026 (source: Mordor Intelligence). Online betting is expected to be the fastest-growing segment during 2021-2026. Software providers are embarking on M&amp;A to achieve consolidation and optimise their product portfolio. See MGM's Prospective Offer for Entain and Enlabs - Entain: Raised Offer and DraftKings/Entain: Cash and Shares Approach. The Americas are driving the growth of Playtech.
The deal should allow Aristocrat to gain scale and increase offering in both Aristocrat’s casino business and the online sports betting market in the USA, where Playtech has recently expanded in response to more relaxed rules allowing online gambling and sports betting. Aristocrat expects to realise additional EPS in the high single digits in the first year after purchase.
Playtech's est. WACC is 9.2% vs a LTM ROIC of 4.6%. This means that the company destroys value as it grows. Aristocrat est. WACC is 9.6% vs. a LTM ROIC of 4.5%. Like Playtech, it destroys value as it grows. This may be the reason why Aristocrat is seeking scale.
I value Playtech using a SOTP model (gaming business valued at sector multiples and Financials business in line with financial trading peers and call options related to Latin America structured agreements at book value). My estimate of fair value is 590p.
Paraphrasing the Chairman of Playtech, the deal provides an attractive opportunity for shareholders to cash the chips. This is a done deal, as shareholders are highly likely to approve it, in my view. Gross spread is just 0.4%. I would wait for share price weakness before establishing a position.
Playtech was in the process of streamlining and divesting poor performing divisions (Finalto), thus becoming more attractive and the latest London-listed gambling company to be targeted for a takeover, as operators rush to build scale and break into the USA. 2021 has seen the takeover of William Hill (WMH LN) (William Hill - Caesars (Almost) Done Deal, Trading Above Terms), and two attempts on Entain (ENT LN).

Aristocrat/Playtech: Cashing in the Chips

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<a href="https://www.smartkarma.com/entities/aristocrat-leisure-ltd" target="_blank" data-smartkarma-citation="entities:10303:1" rel="noopener">Aristocrat Leisure (ALL AU)</a> aims to raise around US$1bn (A$1.3bn) via a renounceable entitlement offer to partly fund its acquisition of <a href="https://www.smartkarma.com/entities/playtech-plc" target="_blank" data-smartkarma-citation="entities:22099:1" rel="noopener">Playtech Plc (PTEC LN)</a> for a total enterprise value of around A$5bn.Past deals undertaken by Aristocrat have generally done well and the stock has a good track record. In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

Aristocrat Leisure (ALL AU) aims to raise around US$1bn (A$1.3bn) via a renounceable entitlement offer to partly fund its acquisition of Playtech Plc (PTEC LN) for a total enterprise value of around A$5bn.Past deals undertaken by Aristocrat have generally done well and the stock has a good track record. In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

Aristocrat Leisure's Playtech Acquisition, Entitlement and Shortfall

TMT & Consumer Independent Equity Research Analyst, Obex Capital Research

Aaron Gabin

TMT & Consumer Independent Equity Research Analyst

TMT & Consumer Independent Equity Research

Obex Capital Research

“Obex” is Latin for Barriers to Entry. Obex Capital Management’s investment philosophy is driven by an intense focus on which business model’s Barriers to Entry are able to withstand the ever increasing competitive disruption in the TMT and Consumer Sectors.

Equity Bottom-Up

Last week, New York Governor pointed towards legalizing online gambling to try to plug the budget gaps that COVID has blown open. He wants to raise $500M in revenues annually. We don't think he will get there, but we do think NY is a $700M TAM.At $52, is it time to re-engage on Draft Kings even after an 11% rally?<div class="content-highlight">Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</div>

Last week, New York Governor pointed towards legalizing online gambling to try to plug the budget gaps that COVID has blown open. He wants to raise $500M in revenues annually. We don't think he will get there, but we do think NY is a $700M TAM.At $52, is it time to re-engage on Draft Kings even after an 11% rally?Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

NY State To Legalize Gambling, Double Down on DraftKings?

<a href="https://www.smartkarma.com/entities/caesars-entertainment-corp" target="_blank" data-smartkarma-citation="entities:15532:1" rel="noopener">Caesars Entertainment (CZR US)</a> agreed last Wednesday a takeover offer of <a href="https://www.smartkarma.com/entities/william-hill-plc" target="_blank" data-smartkarma-citation="entities:22210:1" rel="noopener">William Hill (WMH LN)</a> for an amount of c. GBP2.9 bn, or GBp 272 per share of WHM in cash. This is to be effected by a Scheme of Arrangement.
The US group, which owns Caesars Palace, will focus on integrating the British group's American business into CZR. With William Hill's board backing the Caesars deal, the company's sale is virtually complete, and Apollo, whose two bids were turned down, is virtually out of the game.
Nevertheless, the deal has to be voted in December by William Hill's shareholders (75% required).
Wiliam Hill's shares closed at 278p on Friday, vs the offer of 272p.
<ul class="">
<li>a spread of 2.2% above indicated offer terms.</li>
<li>The market does not completely rule out the possibility of a higher bid, although CZR has a poison pill in case anybody else dares to bid for William Hill, and has signalled its willingness to dispense it.</li>
</ul>
If you really believe there is an outstanding opportunity in online gambling and sportsbetting in the USA, just as CZR and most analysts do, you should be switching from William Hill into CZR.
<ul>
<li>“William Hill’s sports betting expertise will complement Caesars’ current offering.”
<ul>
<li>CZR will dispose the most troublesome bits of William Hill, those exposed to the regulatory vagaries in both Australia and the UK. And there are buyers for them.</li>
<li>The potential William Hill acquisition is likely to create value for shareholders with little risk, up to $2.5 bn, or $12.25 per share of CZR (22% upside from last close). And there's the upside risk of consensus revisions.</li>
<li>CZR could integrate its own online business with that of William Hill, spin it off and list it. DraftKings is trading at an EV/Forward EBITDA (Cap IQ consensus) of 33.8x. </li>
</ul>
</li>
<li>The mean target price of CZR on Capital IQ is $67, an 18% upside vs. last close.</li>
</ul>

Caesars Entertainment (CZR US) agreed last Wednesday a takeover offer of William Hill (WMH LN) for an amount of c. GBP2.9 bn, or GBp 272 per share of WHM in cash. This is to be effected by a Scheme of Arrangement.
The US group, which owns Caesars Palace, will focus on integrating the British group's American business into CZR. With William Hill's board backing the Caesars deal, the company's sale is virtually complete, and Apollo, whose two bids were turned down, is virtually out of the game.
Nevertheless, the deal has to be voted in December by William Hill's shareholders (75% required).
Wiliam Hill's shares closed at 278p on Friday, vs the offer of 272p.

a spread of 2.2% above indicated offer terms.
The market does not completely rule out the possibility of a higher bid, although CZR has a poison pill in case anybody else dares to bid for William Hill, and has signalled its willingness to dispense it.

If you really believe there is an outstanding opportunity in online gambling and sportsbetting in the USA, just as CZR and most analysts do, you should be switching from William Hill into CZR.

“William Hill’s sports betting expertise will complement Caesars’ current offering.”

CZR will dispose the most troublesome bits of William Hill, those exposed to the regulatory vagaries in both Australia and the UK. And there are buyers for them.
The potential William Hill acquisition is likely to create value for shareholders with little risk, up to $2.5 bn, or $12.25 per share of CZR (22% upside from last close). And there's the upside risk of consensus revisions.
CZR could integrate its own online business with that of William Hill, spin it off and list it. DraftKings is trading at an EV/Forward EBITDA (Cap IQ consensus) of 33.8x. 


The mean target price of CZR on Capital IQ is $67, an 18% upside vs. last close.


William Hill - Caesars (Almost) Done Deal, Trading Above Terms

British bookmaker <a href="https://www.smartkarma.com/entities/william-hill-plc" target="_blank" data-smartkarma-citation="entities:22210:1" rel="noopener">William Hill (WMH LN)</a><a href="https://www.williamhillplc.com/investors-centre/regulatory-news/item?rnsid=3819908" target="_blank" rel="noopener">confirmed on 25 September </a>that it has received separate cash proposals from <a href="https://www.smartkarma.com/entities/apollo-global-management-inc" target="_blank" data-smartkarma-citation="entities:28770:1" rel="noopener">Apollo Global Management Inc (APO US)</a> ("Apollo") and <a href="https://www.smartkarma.com/entities/caesars-entertainment-corp" target="_blank" data-smartkarma-citation="entities:15532:1" rel="noopener">Caesars Entertainment (CZR US)</a> ("Caesars").
Apollo submitted its first takeover offer on Aug. 27, then upgraded it, while Caesars joined the bidding for a company that has been hit hard by the coronavirus.
Today, press reports that Caesars in is advanced talks on a £2.9 bn takeover bid, at £272p per share, which would value the equity of William Hill at 2,855 mn. The shares of William Hill have adjusted downwards and at 15.30 (GMT) were trading at 275, above the indicated level for Caesar's prospective offer.
Caesars is undertaking an equity capital raising (30 mn shares, at $57.07 the closing price of Friday, could raise $1.7bn) with the aim of using its proceeds, together with existing cash and $2 billion (£1.6 billion) of new non-recourse debt facilities to fund the offer. The transaction would be subject to approval of William Hill shareholders and customary antitrust and regulatory gaming approvals. Caesars expects that the transaction would close in the second half of 2021.
I estimate that a private equity buyer could pay 300p per share (10% premium to Caesar's offer) and achieve an IRR of 20.3% between years 7 and 8. Apollo would seek to launch a friendly offer.
I believe that the first move by Caesars makes it more difficult for Apollo to present an offer and enter into a bidding war for William Hill, but this should not be ruled out.
Recommendation is LONG William Hill. There may be further upside from an Apollo offer.

British bookmaker William Hill (WMH LN)confirmed on 25 September that it has received separate cash proposals from Apollo Global Management Inc (APO US) ("Apollo") and Caesars Entertainment (CZR US) ("Caesars").
Apollo submitted its first takeover offer on Aug. 27, then upgraded it, while Caesars joined the bidding for a company that has been hit hard by the coronavirus.
Today, press reports that Caesars in is advanced talks on a £2.9 bn takeover bid, at £272p per share, which would value the equity of William Hill at 2,855 mn. The shares of William Hill have adjusted downwards and at 15.30 (GMT) were trading at 275, above the indicated level for Caesar's prospective offer.
Caesars is undertaking an equity capital raising (30 mn shares, at $57.07 the closing price of Friday, could raise $1.7bn) with the aim of using its proceeds, together with existing cash and $2 billion (£1.6 billion) of new non-recourse debt facilities to fund the offer. The transaction would be subject to approval of William Hill shareholders and customary antitrust and regulatory gaming approvals. Caesars expects that the transaction would close in the second half of 2021.
I estimate that a private equity buyer could pay 300p per share (10% premium to Caesar's offer) and achieve an IRR of 20.3% between years 7 and 8. Apollo would seek to launch a friendly offer.
I believe that the first move by Caesars makes it more difficult for Apollo to present an offer and enter into a bidding war for William Hill, but this should not be ruled out.
Recommendation is LONG William Hill. There may be further upside from an Apollo offer.

William Hill - Caesars: Entertainment Prospective Bid

United Kingdom

William Hill plc provides bookmaking services in the United Kingdom.  The Group, which operates licensed betting offices, telephone based-betting operations, and online betting, offers odds and takes bets on an assortment of sporting and other events.  William Hill's betting offices provide access to real-time sports information via television and audio satellite links.

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William Hill (WMH LN)

Aristocrat/Playtech: Cashing in the Chips

Shareholders are highly likely to cash in the chips, in my view. Gross spread is just 0.4%. Wait for share price weakness. London-listed gambling...

Jesus Rodriguez Aguilar

Aristocrat Leisure's Playtech Acquisition, Entitlement and Shortfall

Aristocrat Leisure (ALL AU) aims to raise around US$1bn via a renounceable entitlement offer to partly fund its acquisition of Playtech Plc (PTEC...

Sumeet Singh

NY State To Legalize Gambling, Double Down on DraftKings?

After New York's Governor signaled he would legalize gambling, we revisit our previous bullish thesis on DraftKings to see if now is the time to re...

Aaron Gabin

William Hill - Caesars (Almost) Done Deal, Trading Above Terms

Caesars Entertainment (CZR US) agreed last Wednesday

Jesus Rodriguez Aguilar

William Hill - Caesars: Entertainment Prospective Bid

Apollo and Caesars Entertainment present separate bids for the British bookmaker William Hill.

Jesus Rodriguez Aguilar

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