Caesars shoots lower than expected with $3.7 billion William Hill bid

Caesars shoots lower than expected with $3.7 billion William Hill bidCaesars 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 . 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.


Nikola Founder Milton’s Fall Reveals What His Backers Feared

Nikola Founder Milton’s Fall Reveals What His Backers Feared(Bloomberg) -- Back in March, long before a short seller would raise questions about electric-truck company Nikola Corp. and hasten its founder’s exit, early investors in the company were expressing concerns of their own.Those investors, led by mutual-fund giant Fidelity Investments, were worried that Trevor Milton, for all his brash visionary talk and Twitter braggadocio, lacked the ability that Elon Musk possesses to deliver these sorts of newfangled products to market. They lobbied successfully to remove him as CEO before the company’s June IPO and for Milton’s father to leave the board, according to people familiar with the matter. When the deal was done, Milton only held the title of chairman, the post he resigned this month.The back-room negotiations show that Milton’s past was a concern to investors months before General Motors Co. executives placed a bet on the company in a $2 billion deal carved out after the IPO. They liked Milton’s vision and his ability to raise cash and felt the venture was safeguarded from his shortcomings in operations by his push upstairs, say people familiar with the matter. Nonetheless, the events that have unfolded since the short-seller report, with Nikola’s stock plunging amid a steady stream of negative headlines, have exposed just how high the risks still were.Now, it’s up to former GM Vice Chairman Steve Girsky, whose blank-check company VectoIQ took Nikola public via reverse merger in June, and Nikola CEO Mark Russell to stabilize the business and regain investor confidence. The plan with GM was to use Nikola’s hot stock and Milton’s ability to raise money to build a hydrogen-fueled trucking business with GM’s technology.“There is obviously someone on the diligence side who isn’t going to get a nice bonus this year,” said Reilly Brennan, founder of the venture capital fund Trucks Inc. “The best possible thing if you’re a shareholder is that Milton is no longer running the company and you have Girsky as chairman and GM providing technology.”The GM deal was originally scheduled to close Sept. 30, and the automaker has said it plans to carry through, but that timing may slip, say people familiar with the matter. BP Plc is still engaged with Nikola in talks to partner on a network of hydrogen fueling stations for fuel-cell trucks the company hopes to sell, but also is slowing the pace for a deal, said the people, who asked not to be identified discussing private information. BP and GM declined to comment.Shares of Nikola fell 4.78% to $18.55 as of 9:45 a.m. Monday in New York and down 45% since it went public. GM rose 2.5% to $29.72.Milton’s tale reads like a Greek tragedy. The report by short seller Hindenburg Research accused Milton of overhyping Nikola’s technology and has prompted investigations by the Justice Department and U.S. Securities and Exchange Commission. A cousin has accused him of a decades-ago sexual assault, which he denies. The company’s value peaked at $30 billion and is now worth about $7 billion.Girsky and GM Chief Executive Officer Mary Barra have both said publicly that they did plenty of due diligence. People familiar with the matter say that GM found out when scouting the deal that it had better batteries and fuel-cell technology but joined forces because Nikola had a working semi truck and access to capital markets. In addition, GM will get paid to build Nikola’s Badger pickup on existing assembly lines. Milton was so excited to get the Badger pickup program moving that he signed a deal that heavily favored GM, one of the people said.Nikola’s stock and GM’s $2 billion stake are worth less than half what they were on Sept. 8, when the deal was announced. Milton’s own stake is worth $1.7 billion, down from almost $5 billion at one point.Humble BeginningsMilton said in a June interview with Bloomberg News that he grew up in modest surroundings in Layton, Utah. His family moved to Las Vegas when he was very young and he lost his mother to cancer shortly after moving back to Utah in the sixth grade. He wrote on Twitter he didn’t finish high school, earning an equivalency certification instead, and later dropped out of college. His Twitter account has since been deleted.He grew up in a tight-knit Mormon family, according to Aubrey Smith, his first cousin. She went on social media recently and accused him of sexually assaulting her in 1999 when she was 15 and he was 17.In a public account on Facebook and Twitter, and repeated in a phone interview, Smith said that Milton came onto her at the funeral of their grandfather. He took her shirt off without permission, Smith wrote, and then he touched her inappropriately before someone knocked at the door and she ran out.Milton denied the allegations through a spokesman.Smith said Milton raised money from family members to get his start. He founded and ran several businesses, including a home-security company that Milton claims he sold for $1.5 million. Next, in 2009, he founded an e-commerce platform called Upillar.com, which Milton claims “pioneered the shopping cart online.”Clean PowerThen he got into clean propulsion but ended up embroiled in litigation with dHybrid Inc., which he founded in 2009. The company retrofitted diesel vehicles with natural-gas-burning turbines, claiming the dual system had greater efficiency.But a deal with Swift Transportation Co. in 2010 ended in court when Swift alleged dHybrid defaulted on a $322,000 loan and that it retrofitted only half of the agreed vehicles. The case was dismissed in 2015.Milton later tried to sell dHybrid to a company called sPower in May 2012 but that, too, got mired in lawsuits after sPower backed out and accused Milton of exaggerating its technological capabilities.Amid the litigation, Milton started another company with a very similar name, dHybrid Systems, selling it in 2014 to Worthington Industries.During an interview with Bloomberg in June, Milton said that dHybrid Inc. was a success but conceded that, “we ended up closing that one down because of some litigation.”His next startup was Nikola, founding it in 2014 in Salt Lake City before moving to Phoenix. Emulating Musk, he took the name from the electricity pioneer Nikola Tesla, and the company was soon billed as the Tesla of Trucks. His plan was seen as potentially disrupting the entire transportation industry by making trucks that ran on batteries or hydrogen-fuel cells. He also planned to build a network of hydrogen filling stations.Friends and FamilyMilton had friends and family members working for Nikola despite resumes that didn’t match the job. His brother, Travis Milton, is director of hydrogen and infrastructure. His LinkedIn profile shows that most of his experience was being “self-employed” in Maui. The short seller, Hindenburg Research, said that Travis Milton poured concrete as a contractor. Milton’s father Bill was originally on the board but stepped down when VectoIQ took the company public.The company’s stock prospectus said that Nikola had awarded more than 3 million stock options “to recognize the superior performance and contribution of specific employees.” The list included Travis Milton and an uncle, Lance Milton, the document said, acknowledging that they are relatives.As Milton went public with Nikola’s technology, questions soon arose involving his claims about the company’s fuel-cell system. He bragged in an investor video in 2019 that the company had created “what other manufacturers said was impossible to design.” But while Nikola holds patents in fuel-cell and battery technology, most of its planned hardware was coming from German supplier Robert Bosch Gmbh.Nikola DemonstrationsIt became clear that Milton had gotten ahead of himself. A 2016 demonstration showed a truck that didn’t have a working hydrogen-fuel-cell system and was missing key parts, people familiar with the matter said in June. Milton said at the time that the parts were removed as a safety precaution.In July of this year, he recorded a video of the semi truck in which he ran alongside the vehicle as it coasted at low speeds in a parking lot. Aping Musk’s combative social-media persona, Milton took a shot at his detractors saying, “these damned trolls, I wonder if they are going to apologize to everyone for the lies they spread the tens of thousands of comments about how fake we are.”Girsky said in the webcast “Autoline This Week,” in which Bloomberg participated, that he has been in Nikola’s fuel-cell trucks and that they work.Still, when the GM deal was done, GM will be supplying all of the technology for every global market except Europe. Nikola’s pickup truck, called Badger, will use GM’s Ultium battery, and the semis will run on a fuel cell developed by GM and Honda Motor Co.Since Milton’s departure, Nikola has billed itself more as an integrator of other technologies into its Badger pickup and semi trucks.For GM’s part, the automaker is protected from any financial downside. GM got 11% of the stock for no cash investment and gets paid for its technology. If Nikola fails, GM won’t lose a dime.Milton has remained silent and is out of the company. He unknowingly presaged his own downfall in the June interview with Bloomberg: “Part of becoming a better person in life is losing everything you have got and having nothing left.”(Updates with Monday trading in seventh paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.


Devon to Buy WPX for $2.56 Billion to Expand in Permian Shale

Devon to Buy WPX for $2.56 Billion to Expand in Permian Shale(Bloomberg) -- Devon Energy Corp. agreed to acquire WPX Energy Inc. in a $2.56 billion all-stock deal, creating one of the largest independent U.S. shale producers and answering investor calls for consolidation at a time of crisis for the sector.Devon shareholders will own about 57 percent of the combined company, Devon and WPX said Monday in a statement.The combination will create one of the biggest independent shale producers in the country, tying together two companies with sizable operations in the hottest part of the prolific Permian Basin, which straddles West Texas and southeastern New Mexico.U.S. shale company shareholders, frustrated after years of poor returns and missed targets, have long called for the industry to consolidate in order to cut costs, and some have advocated for low- to no-premium deals, just to get them across the finish-line. The plunge in oil prices this year, which has left much of the industry unprofitable, has only added to the impetus for mergers and takeouts, particularly in the Permian, where scores of producers operate side by side.“This deal makes strategic sense as Devon and WPX have proximate positions in the state line area of the Delaware Basin,” Leo Mariani, an Austin-based analyst at KeyBanc Capital Markets Inc., wrote in a note before the merger was announced. The Delaware is a sub-basin of the Permian that has some of the lowest breakeven costs in the country. “Devon also has a stronger balance sheet than WPX, which would allow WPX shareholders to better weather the current oil price downturn,” he said.The merger comes after Chevron Corp. agreed to buy Noble Energy Inc. in July for about $5 billion, though that deal wasn’t just about Chevron acquiring additional U.S. shale assets but sizable natural gas operations in the Eastern Mediterranean as well. A Devon-WPX combination is also the most significant transaction between two independent U.S. producers since WPX bought private equity-backed Felix Energy in March.“The environment could be ripe for further industry consolidation given the importance of scale as companies shift their focus toward” generating free cash flow and improving their balance sheets, Arun Jayaram, an analyst at JPMorgan Chase & Co., wrote earlier this month in a note to investors.WPX was cited as an attractive takeover target by Neal Dingmann, an analyst at Truist, in a note to investors last week. Dingmann boosted his rating on the stock to a buy from a hold on the expectation that WPX would see better free cash flow through the next couple of years.A deal with WPX would also address Devon’s exposure to federal acreage, according to Gabe Sorbara, an analyst at Siebert Williams Shank & Co. LLC. That’s particularly important just a month out from the U.S. presidential election, with Democratic nominee Joe Biden vowing to ban all new fracking on federal lands if he wins.Devon and WPX both have significant operations in the Delaware sub-basin. Much of the Delaware, however, is located within lands owned by the federal government, and Devon has been fielding analyst questions for months about the potential impact of a Biden presidency. WPX has a smaller percentage of its acreage on federal lands, Sorbara said.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.


Caesars Says $3.7 Billion Bid High Enough for William Hill

Caesars Says $3.7 Billion Bid High Enough for William Hill(Bloomberg) -- Caesars Entertainment Inc. said William Hill Plc’s board would likely recommend its 2.9 billion-pound ($3.7 billion) takeover offer price, giving it an edge over rival suitor Apollo Global Management Inc.The British gambling group confirmed it received approaches from both U.S. companies after Bloomberg reported Apollo’s interest on Friday. William Hill shares fell 10% to 280.4 pence at 12:44 p.m. in London on Monday -- slightly above Caesars’s 272 pence bid -- as investors reined in expectations of a hefty counteroffer by the private equity firm. William Hill shares had soared 43% on Friday after the rival takeover approaches emerged.Caesars’s U.S. joint venture with William Hill “makes rival offers unlikely,” said Goodbody analyst Gavin Kelleher. The bid is a 25% premium to William Hill’s closing share price before the takeover interest was reported.Caesars also announced a stock offering of 30 million shares on Monday, which could raise about $1.7 billion based on the $57.07 Friday closing value of its stock. Proceeds could be used to pay for the proposed acquisition, the company said.Caesars controls 20% of the U.S. joint venture and William Hill controls the remaining 80% of the equity. The two were already in discussions about merging some of their operations in the U.S., where the British bookmaker is looking to expand following the legalization of sports betting by the Supreme Court in 2018.Caesars said the joint venture “needs to be broadened in scope in order to fully maximize the opportunity in the sports betting and gaming sector.” If its bid is successful, Caesars said its focus would be on William Hill’s U.S. assets and it would “seek suitable partners or owners” for the other businesses, such as the U.K.However, it warned it could pull out of some of the partnerships with William Hill if it loses the battle with Apollo. That would risk cutting off the British company’s access to the crucial American market.William Hill’s home market has been hit with regulations such as stake limits on betting machines -- a rule which rendered hundreds of its stores unprofitable and led to 700 being closed. Further tightening of U.K. gambling rules is being considered, while William Hill’s recent earnings have also been hit by Covid-19 shutdowns of sports events and the remaining stores.Apollo made its initial written proposal for William Hill on Aug. 27, then both the buyout firm and Caesars made further approaches, William Hill said in Friday’s statement. The suitors have until Oct. 23 to announce they intend to make a firm offer or walk away under U.K. takeover rules.Apollo declined to comment on the rival offer.(Updates with Caesars share offer details in fourth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.


Cleveland-Cliffs to Buy ArcelorMittal USA for $1.4 Billion

Cleveland-Cliffs to Buy ArcelorMittal USA for $1.4 Billion(Bloomberg) -- Cleveland-Cliffs Inc. will buy the U.S. operations of ArcelorMittal SA for $1.4 billion in cash and shares to become the biggest flat-rolled steel producer in North America.Ohio-based Cleveland-Cliffs expects its second major deal in less than a year to boost sales to the important automotive market and help reduce costs. Earlier in 2020, the global steel industry saw its biggest slump in production in a decade as demand from key consumers was hit hard by coronavirus lockdowns. Even before the pandemic, the sector had struggled for years with excess production capacity.“We are now sitting on a platform that will be the benchmark in terms of how to produce steel,” Cliffs Chief Executive Officer Lourenco Goncalves told analysts on a conference call. “With this broad portfolio we can now fully optimize our participation as an important player in the American market.”The deal will help ArcelorMittal reduce debt and the company will use $500 million of the cash proceeds to repurchase shares, starting immediately. The stock jumped as much as 11% on Monday in European trading.Cleveland-Cliffs rose 7% to $6.29 at 10:26 a.m. in New York. The company’s 9.875% bond maturing in 2025 gained almost 3 cents on the dollar, the most ever, to trade as high as 112.125 cents.“Consolidation has been needed in steel for a long time,” said Colin Hamilton, managing director for commodities research at BMO Capital Markets. “Low industry capacity utilization weighs on margins and low interest rates mean nothing goes to the wall to take out capacity.”Cleveland-Cliffs will pay about $873 million of common and non-voting preferred stock, and $505 million in cash for ArcelorMittal USA, according to a statement. The deal comes as U.S. steel prices recover, driven by tightening supply after lockdowns hurt demand.“Steelmaking is a business where production volume, operational diversification, dilution of fixed costs, and technical expertise matter above all else,” Goncalves said earlier in the statement. “This transaction achieves all of these.”ArcelorMittal said in July it was considering “structural changes” to the business as it adjusts to the effect of the pandemic on global steel demand. The company suspended dividend payments earlier in the year and had previously set a target of about $2 billion in asset sales to help reduce debt.While top producer China was quick to rebound, ArcelorMittal said in July that a recovery in the global market was not without risks. Steel demand -- a barometer of the global economy -- could take more than a year to fully recover even with massive stimulus measures worldwide.The enterprise value of the deal is about $3.3 billion and it will generate about $150 million in annual cost savings, Cleveland-Cliffs said.ArcelorMittal, which is based in Luxembourg, generated revenue of $18.6 billion from the North American region last year, accounting for about a quarter of its sales. The assets being acquired include six steelmaking facilities, eight finishing facilities, two iron ore mining and pelletizing operations, and three coal and coke-making operations.While selling its U.S. steel business, ArcelorMittal will continue to operate its assets in Canada and Mexico, which are higher margin businesses with growth potential due to its NAFTA exposure, according to analysts at Citi. In a note to its clients, Citi estimated average earnings before interest, taxes, depreciation, and amortization for the remaining businesses was $95 per ton in 2018-2019, versus the implied EBITDA of approximately $60 per ton for the U.S. steel business.Reuters first reported on a potential deal Sunday.Goldman Sachs & Co. LLC acted as financial adviser to Cleveland-Cliffs, and BofA Securities for ArcelorMittal, according to the statement.Cleveland-Cliffs shares have declined 30% this year, leaving it with a market value of $2.35 billion. In March, the company acquired AK Steel, an automotive and industrial-parts maker valued at $3 billion. The miner finished the deal after raising $725 million in a junk-bond sale.(Updates with CEO comment in third paragraph, analyst comment in 13th paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.