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 a two-year high above 312 pence after it said it had received separate offers from Caesars and buyout group Apollo.
They were last at 275 pence, suggesting that even if Apollo counters, investors now expect the price to be far lower.
Caesars, which first approached William Hill on Sept. 1, said its offer price included an almost 60% premium over the company's share price that day and highlighted the risk of taking on a U.S. business still in its infancy.
The company said it intends to find suitable partners or owners for William Hill's non-U.S. businesses, including more than 1,500 UK betting shops.
Caesars could strike a separate deal to flip the UK assets to Apollo, two sources familiar with the matter said, or if that failed, launch an auction process targeting both financial and corporate bidders.
Apollo declined to comment.
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 the backing of William Hill's board, Jefferies analysts said.
The deal will need to be cleared by antitrust regulators in the United States and is conditional on Caesars raising cash to finance the transaction.
Shares in Caesars were down 1.4% at $56.25, having opened higher. Stifel analyst Bridie Barrett said that a combined business has the reach, platform and product to carve out a strong position in the United States.
William Hill, shares of which hit their lowest in 20 years in March, 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.
Caesars said it would offer 30 million shares to fund the deal but gave no indication of pricing. Based on its closing share price of $57.07 on Friday, the share offer would be worth $1.7 billion.
It would also 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 FY2021.
The offer comes soon after Eldorado Resorts completed buying bigger rival Caesars for about $8.5 billion, creating a new competitor for larger sector players like Las Vegas Sands and Wynn Resorts.
(Reporting by Tanishaa Nadkar in Bengaluru and Pamela Barbaglia in London; Editing by Ramakrishnan M. and Patrick Graham and Kirsten Donovan)
By Tanishaa Nadkar and Pamela Barbaglia