Caesars is in advanced takeover talks with William Hill that value the British bookmaker at 2.9 billion pounds ($3.7 billion) and would give the casino operator full control of a quickly expanding U.S. sports-betting and online business.
Caesars was considering offering 272 pence per share and William Hill's board was inclined to recommend such an offer to shareholders, the companies said on Monday.
William Hill shares on Friday surged to more than 312 pence each after it said it had received separate offers from Caesars and buyout group Apollo.
Those gains were handed back on Monday, however, leaving the stock at 273 pence, suggesting that even if Apollo counters, investors now expect the price to be far lower.
Caesars only holds 20% of its U.S. joint venture with William Hill but the business is built on a presence in Caesars casinos and its brand name, which the casino owner said it would have the right to terminate in the event of an Apollo buyout.
The bid significantly undervalues the company but there seems limited scope for bid competition due to the joint venture terms and also since William Hill's board said it would be minded to recommend the offer, Jefferies analysts said.
Apollo did not immediately respond to a Reuters' request for comment outside usual business hours.
Stifel analyst Bridie Barrett said the brokerage's valuation range for William Hill is 270 pence to around 400 pence.
"While a termination of the relationship with William Hill under new ownership makes little business sense, it does add risk for a private equity acquisition...a price at the upper end of our range is unlikely," Barrett said.
William Hill's shares were already trading close to two-year highs before news of the proposals, having fallen to their lowest in 20 years in March.
It has offset regulatory pressure at home by expanding in the U.S. and partnering with CBS Sports and ESPN to cash in on the relaxation of sports betting rules there.
To fund the deal, Caesars said it was raising equity and would take out $2 billion of new debt secured against William Hill's non-U.S. businesses.
Caesars said the enlarged sports and online gaming business in the U.S. could generate between $600-$700 million in net revenue in full-year 2021.