Jackpot potential for Amaya shareholders
New bids possible
• No media to answer to about insider trading investigations, lawsuits and regulatory hurdles; no nervous shareholders to reassure, and fewer pressures for uninterrupted growth as the market undervalues the company — this could be the new reality for Amaya Inc. chief executive David Baazov if he goes ahead with a $2.8-billion bid to turn the publicly listed online gambling giant into a private business.
For shareholders, it means they could eventually vote on whether to sell their stock at the $21 offered by Baazov and a “small number” of investors — a premium of about 40 per cent compared to what it was before he announced his intentions on Feb. 1.
“He’s probably one or two puzzle pieces away from creating an online juggernaut, and if the market’s not going to give him any value, he’ll take it private and finish the puzzle, then spin this out once all the headlines are gone,” said Cantor Fitzgerald Canada analyst Ralph Garcea to the Financial Post.
“He’s a brilliant strategist.” Assuming Baazov makes a formal offer — which he says he intends to do around the end of the month — it will be up to a special committee of directors to evaluate any takeover bids the PointeClaire, Que.- based company receive and give shareholders an opinion on valuation.
“Based on that opinion they’ ll either recommend for or against tendering the shares,” said Phillip King, a lawyer and professor at Western University’s Ivey Business School in London, Ont.
“If the opinion is that this company is worth more than what it’s trading at, it’s quite possible that shareholders can say that this guy’s either going to sweeten his offer or someone else is going to come along with a better offer.”
Analysts say another bidder is a possibility, especially as big players in the gambling industry continue with a migration online.
“All the brick- and- mortar guys need to do something to get online,” said Garcea, who rates Amaya as a “Buy” with a $ 45 one- year target share price.
He says U. K.- based book- maker William Hill PLC is one company that has not made a big online deal and might want to get in on this action.
“I don’t think $21 will clear, so whether (Baazov) ends up having to increase his bid or you end up getting private equity or a strategic buyer coming in at a much higher bid, we’ll see how this unfolds,” Garcea said.
King says if shareholders hold out for a better offer, the risk is that the deal could fall through, leaving public investors sitting on their stocks instead of walking away richer.
If it does come time to vote on tendering shares, King says it will take the agreement of at least 90 per cent of shareholders, according to Canadian securities rules. Baazov alone owns about 18.6 per cent of the outstanding common shares.
Shareholders who oppose can still try to exercise their dissenting stockholder’s appraisal rights, but King says even though the stock is now trading closer to the $21 offer at over $18 on the TSX Feb. 9, Baazov’s valuation would not be easy to argue against in court.
“You’re going to have a very difficult time arguing that fair value is more than 40 per cent higher than what ( the stock) is trading on,” King said.
After this, the deal would need approval from the Toronto Stock Exchange and the company’s board of directors.
Amaya said Monday it had been notified that its executive vice-president for corporate development, along with three other employees, may be participating in the potential takeover being contemplated by Baazov.
The online gambling company didn’t identify Baazov’s allies by name, but its executive vice- president for corporate development is Marlon Goldstein, who is also Amaya’s general counsel.
If the deal does go through, Garcea says he believes Amaya would be better served as a private company with backers who can stomach seeing debt while the company grows.
When Amaya bought Rational Group, the owner of PokerStars and Full Tilt Poker in June 2014 for US$4.9 billion, the company’s EV/ EBITDA was 6.5x and Garcea says he expects that by the end of 2016 they’ll probably go to 4x.
“Everyone thinks (Baazov) is over-leveraged, but it’s far from the truth,” said Garcea. “With t he r evenue and EBITDA that Amaya’s doing already with the current business, this is perfect for private equity.”
Through this privatization, he says Baazov will have the flexibility to continue doing acquisitions, such as taking another swing at PartyPoker, now owned by GVC Holdings, which would give Amaya over 80 per cent of the global online poker market.