Caesars Inherits 24.5 Percent NeoGames Stake Through William Hill Acquisition

Posted on: August 28, 2021, 09:41h. 

Last updated on: August 28, 2021, 06:41h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Caesars Entertainment (NASDAQ:CZR) is getting a nice sweetner, thanks to its recently completed acquisition of William Hill: A stake in iLottery provider NeoGames (NASDAQ:NGMS).

Caesars NeoGames
Caesars Palace Las Vegas. The operator gets a 24.5 percent in NeoGames from buying William Hill. (Image: Getty Images)

In a Schedule 13G filing with the Securities and Exchange Commission (SEC) released Friday, Caesars revealed it owns 6.12 million shares of NeoGames, or 24.5 percent of the company’s shares outstanding as of April 12.

Based on NeoGames’ closing price of $42.18 yesterday, Caesars’ interest in the Israeli company is worth $258.44 million. That goes a long way toward defraying the $3.69 billion the casino behemoth shelled out to purchase William Hill.

NeoGames, which went public last November, is up 11 percent year-to-date, but is off 42.64 percent from its record high set in early June.

Caesars Possible Plans for NeoGames Investment

Caesars’ SEC document doesn’t indicate an intent by the gaming company to be an activist investor in NeoGames. Activists, usually hedge funds or other institutional investors, push for some type of change, including spin-offs, sales of lagging businesses, share buybacks, and the like.

Caesars is in the business of running integrated resorts, sportsbooks, and online casinos — not being a corporate raider. Still, NeoGames is an asset with appreciation potential for Caesars, and one with a compelling business model.

The Israeli company provides online lottery services and solutions to a variety of state-level customers across the US, and is the only pure-play equity in this category. The thesis underpinning the name is familiar. Increased adoption by states, echoing the refrain often heard regarding operators of internet casinos and online sportsbooks.

In the US, NeoGames is also operational in New Hampshire, North Carolina, and Virginia, and is pursuing iLottery contracts in Alaska, Connecticut, Maryland, Massachusetts, Missouri, Ohio, and Oregon. It also provides iLottery services in Alberta, Canada and some countries in Europe.

Don’t Bet on an Acquisition…Yet

Simply because a company owns a stake in another doesn’t mean a takeover will come to pass. That’s likely to be true over the near- to medium-term regarding Caesars and NeoGames.

The Harrah’s operator is fresh off the William Hill purchase, and is in the process of auctioning off that entity’s international operations while trying to create cost efficiencies promised following the 2020 merger that created “new Caesars.”

Additionally, the casino operator is squarely focused on expanding its iGaming and sports betting footprints, recently saying it plans to spend $1 billion over the next several years to gain marketshare in those industries. At least for now, it appears unlikely that Caesars would want to pony up a significant premium to NeoGames’ $1.04 billion market capitalization and then try to weave that business into its existing digital operations. Even if a marriage doesn’t come to pass, Caesars will benefit as NeoGames shares rise.