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Chinese Group to Buy Caesars’ Games Unit for $4.4 Billion (1)

(Bloomberg) -- Chinese investors led by Shanghai Giant Network Technology Co. agreed to buy Caesars Entertainment Corp.’s online casino-style games unit Playtika Ltd. for $4.4 billion, in a bet on the rising popularity of mobile play.

The consortium includes Yunfeng Capital, the private equity company founded by Alibaba Group Holding Ltd. Chairman Jack Ma, China Oceanwide Holdings Group Co., China Minsheng Trust Co., and Hony Capital Fund, the purchasers said Sunday in a statement. Playtika will remain independently run from its headquarters in Herzliya, Israel, they said.

The all-cash deal gives the Chinese buyers a foothold in a fast-growing segment of the gaming industry, as users turn to mobile applications over PC- and console-based systems. The Playtika platform isn’t traditional gambling since its virtual currency cannot be exchanged for real money, an approach that will remain under the new ownership, according to Sunday’s statement. Organized gambling is illegal in China with the exception of licensed casinos in Macau.

“Despite the legal issues in China, these Chinese investors are more comfortable playing the long game,” Union Gaming Group LLC analyst Grant Govertsen said. “Online gaming, eventually, should be massive after the various regulatory hurdles are worked out even if it takes a significant number of years.”

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Commercial Opportunities

For Caesars, it’s an exit from a business that it bought in 2011 via the Caesars Interactive Entertainment arm. The unit’s World Series of Poker and real-money online gaming businesses will not be included in the transaction, according to Sunday’s statement.

Playtika was “the first to introduce free-to-play casino-style games to social networks,” according to the company’s website. Its “Caesars Casino” game, playable as a Facebook application, includes slot machines, blackjack, roulette and video poker.

“We are incredibly excited by the commercial opportunities the consortium will make available to us, particularly in its ability to provide us access to large and rapidly growing emerging markets,” said Robert Antokol, co-founder and chief executive officer of Playtika.

Caesars Entertainment put its largest division into bankruptcy in January of 2015. The company has been negotiating with creditors and a sale of Caesars Interactive could give the company more cash to offer bond holders in a settlement.

Auction Process

The Giant-led consortium had been in talks to acquire the online game unit for more than $4 billion, people familiar with the matter said on July 22. The Chinese group had emerged as the leading contender for the business after an auction process, said one of the people, asking not to be identified because the matter is private.

“Playtika today is a highly profitable growth company with more than 1,300 employees, multiple top grossing titles and millions of daily users,” said Mitch Garber, chairman and chief executive officer of Caesars Interactive.

The deal, subject to regulatory approvals, is expected to be completed in the third or fourth quarter of 2016. Raine Group LLC served as Caesars Interactive’s financial adviser and Latham & Watkins LLP served as legal adviser. CODE Advisers LLC was financial adviser and Fenwick & West LLP served as legal adviser to Shanghai Giant.

Shanghai Giant, backed by billionaire Shi Yuzhu, delisted from the New York Stock Exchange in 2014 and entered the Chinese stock market after a reverse merger with Shenzhen-listed Chongqing New Century Cruise Co. Shares of Chongqing New Century have been suspended since July 13 pending a major transaction involving an “overseas mobile phone games company,” it said.

(Updates with implications on bankruptcy negotiations in 8th paragraph. A previous version corrected the spelling of the Israeli city Herzliya.)

--With assistance from Christopher Palmeri To contact the reporters on this story: Daryl Loo in Singapore at dloo7@bloomberg.net, Keith Naughton in Southfield, Michigan at knaughton3@bloomberg.net. To contact the editors responsible for this story: Julie Alnwick at jalnwick@bloomberg.net, Lisa Wolfson, Kevin Miller

©2016 Bloomberg L.P.