Exclusive: Chinese group in advanced talks to buy Caesars' interactive games unit - sources

By Mike Stone and Liana B. Baker

NEW YORK/SAN FRANCISCO(Reuters) - U.S. gaming holding company Caesars Acquisition Co (CAC) is in exclusive talks to sell the online games business of Caesars Interactive Entertainment Inc to a Chinese consortium that includes Giant Interactive Group Inc, people familiar with the matter said on Thursday.

Caesars granted the consortium a short exclusivity period earlier this week, following an auction that also included U.S. toymaker Hasbro Inc and South Korean mobile game company Netmarble Games, the sources said.

A deal with the Chinese consortium, which hinges on the negotiations being concluded successfully, could value the online games unit of Caesars Interactive Entertainment at more than $4.2 billion, the people added.

The sources asked not to be identified because the matter is confidential. Caesars Interactive Entertainment declined to comment, while Giant could not be immediately reached for comment. Hasbro declined comment and Netmarble could not be reached.

Giant, which develops and operates multiplayer games, was taken private in 2014 for $3 billion, by a group of buyers that included company Chairman Yuzhu Shi and private equity firm Baring Private Equity Asia Ltd.

The sale of the fast growing casino-themed online games unit, which bought the company Playtika in 2011 and does not include the company's real money games or World Series of Poker, had annual revenues rise 23 percent to $766 million in 2015. It will help pump cash into a new group to be created through a merger between CAC and casino giant Caesars Entertainment Corp.

That potential transaction is intertwined with the $18 billion bankruptcy of Caesars Entertainment's main operating unit, Caesars Entertainment Operating Co Inc (CEOC), which is seeking creditor approval for a restructuring plan hinged on billions of dollars of cash and equity from its parent.

The transaction between CAC and the Caesars Entertainment parent is part of a complex web of deals that have come under scrutiny by CEOC's creditors, who accuse the parent company of looting choice assets from its operating unit and leaving it bankrupt. Caesars has said the acquisitions were done at fair value.

Given Caesars' history of asset transfers, lawyers for junior creditors have expressed concern in court over any deals that could jeopardize creditors' recoveries in the bankruptcy.

While proceeds from a Caesars Interactive online games unit sale would help the bankruptcy estate, junior creditors may still object to the distribution of the funds because more money will end up in the hands of first lien banks and lenders.

Junior creditors led by Appaloosa Management remain the biggest hold-outs in the CEOC bankruptcy and have said they have as much as $12 billion in claims against Caesars Entertainment and its private equity backers, Apollo Global Management and TPG Capital LP.

(Reporting by Mike Stone in New York and Liana B. Baker in San Francisco; additional reporting by Tracy Rucinski in Chicago; Editing by Bernard Orr)