Hedge fund HBK Europe Management is pushing for a rerun of the shareholder vote on Caesars Entertainment’s $4 billion takeover of William Hill.
The acquisition was due to be rubber-stamped in a court hearing on March 31 after William Hill shareholders voted for it in November, and the transaction is slated to close in the second quarter. On 18 March, HBK Europe Management sent a letter to William Hill’s shareholders and stakeholders regarding the upcoming UK Scheme Court Hearing.
If the vote was annulled, shareholders could ask Caesars for a better price, so HBK may not be alone in wanting to reset the process, according to a Bloomberg column by Chris Hughes. If the opportunity arose to demand that Caesars pay more, the arguments could be that the existing offer looks less generous after a strong equity rally, and that shares in Caesars and other gambling stocks have performed especially well in recent months.
As the hedge fund explains in the letter, HBK claims that William Hill has not adequately disclosed the terms of the joint venture agreement entered with Eldorado (now Caesars) in September 2018. Per those terms, if a company on the “restricted acquirers” list then buys William Hill, Caesars can terminate the joint venture.
In explaining this, William Hill initially said Caesars could add a “limited” number of names to the list. In the formal deal circular, it added that Caesars could amend the list only “periodically.” HBK argues that this document’s rather imprecise wording led the market to believe that no other bid for William Hill was possible, assuming Caesars could promptly add any challenger that surfaced.
“HBK discovered that, in reality, Caesars’ ability to restrict counterbidders is significantly more limited than this,” the letter said. “On 19 November 2020, at the EGM/Court Meeting, William Hill disclosed, after being questioned by HBK at the meeting, that ‘there can be a maximum of six names on this list. Caesars are entitled to substitute one name every six months.’”
HBK mentions Caesars moving to include private equity firm Apollo Global Management on the restricted list. “It is a rare occurrence indeed to see a ‘poison-pill’ actually being utilized against a UK company,” said the investor. “As such, UK shareholders, who are unaccustomed to such mechanisms, deserved and required a fuller explanation of the Restricted Acquirers list and its limitations in order to properly assess how to vote.”
HBK is urging William Hill investors to write to the company and the Scheme Court if they believe greater detail on the restricted buyers’ list would have affected their votes. If HBK persuades the court not to finalize the takeover, the ramifications could go beyond the takeover price and UK bids using the same “scheme of arrangement” process could become subject to many more challenges claiming deficient documentation.