MONTREAL – No media to work under about insider trading investigations, lawsuits and regulatory hurdles; no nervous shareholders to reassure, and fewer pressures for uninterrupted growth because the market undervalues the company – this could be the brand new reality for Amaya Inc. leader David Baazov if he goes ahead having a $2.8-billion bid to show the publicly listed online gambling giant into a private business.
Amaya Inc CEO to lead all-cash offer to purchase company for $21 a share
Shares of Amaya Inc. shot up nearly 27 percent within the first minute of trading Monday after chief executive David Baazov announced he and a group of investors are earning a bid to get the company that runs gambling online website PokerStars.
For shareholders, it means they could eventually vote on whether to sell their stock at the $21 provided by Baazov along with a “small number” of investors – reasonably limited of about 40 per cent when compared with what it was before he announced his intentions on Feb. 1.
“He’s probably one or two puzzle pieces away from creating a web-based juggernaut, and if the market’s not likely to give him any value, he’ll go private and finish the puzzle, then spin this out once all of the headlines are gone,” said Cantor Fitzgerald Canada analyst Ralph Garcea in an interview using the Financial Post.
“He’s a brilliant strategist.”
Assuming Baazov makes a formal offer – that they says he promises to do round the end from the month – it will likely be up to and including special committee of directors to judge any takeover bids the Pointe-Claire, Que.-based company receives and give shareholders an opinion on valuation.
“Based on that opinion they’ll either recommend for or against tendering the shares,” said Phillip King, an attorney and professor at Western University’s Ivey Business School in London, Ont.
“If the opinion is that this company is more vital than what it’s trading at, the correct answer is entirely possible that shareholders can say this guy’s either likely to sweeten his offer or someone else will come along with a better offer.”
Analysts say another bidder is a possibility, especially as big players in the gambling industry continue a migration online.
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“All of the brick-and-mortar guys have to do something to get online,” said Garcea, who rates Amaya as a “Buy” having a $45 one-year target share price.
He says U.K.-based bookmaker William Hill PLC is a company which has not provided a big online deal and might would like to get in on this action.
“I do not think $21 will clear, so whether (Baazov) winds up needing to increase his bid or else you end up getting private equity finance or a strategic buyer coming in at a much higher bid, we’ll observe how this unfolds,” Garcea said.
King says if shareholders hold out for a better offer, the danger is that the deal could fall through, leaving public investors sitting on their stocks rather than leaving richer.
If it will come time to vote on tendering shares, a takeover can eventually become achieved using the agreement with a minimum of 66.6 per cent of shareholders, according to Canadian securities rules. Baazov alone owns about 18.6 percent of the outstanding common shares.
He’s probably a couple of puzzle pieces away from creating an online juggernaut, and when the market’s not going to provide him any value, he’ll take it private and finished the puzzle
If the offeror acquires more than 90 percent of the shares available, the remaining shares can be purchased outright through a forced statutory transaction known as a minority “squeeze-out.”
Shareholders who oppose can still attempt to exercise their dissenting stockholder’s appraisal rights, but King says even though the stock is now trading closer to the $21 offer in excess of $18 around the TSX Feb. 9, Baazov’s valuation wouldn’t be easy to argue against in the court.
“You’re going to possess a difficult time arguing that fair value is much more than 40 percent higher than what (the stock) is trading on,” King said.
After this, the offer would want approval in the Toronto Stock Exchange and also the company’s board of directors.
Amaya said Monday it had been notified that it is executive vice-president for corporate development, together with three other employees, might be participating in the possibility takeover being contemplated by Baazov.
The gambling online company didn’t identify Baazov’s allies by name, nevertheless its executive vice-president for corporate development is Marlon Goldstein, who is also Amaya’s general counsel.
If the offer does undergo, 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 Fulltiltpoker in June 2014 for US$4.9 billion, the company’s Net Debt/EBITDA was 6.5x and Garcea says he expects that by the end of 2016 they’ll probably go to 4x.
“Everyone thinks (Baazov’s) s over-leveraged but it’s not very true,” said Garcea. “With the revenue and EBITDA that Amaya’s doing already with the current business, this is perfect for private equity.”
Through this privatization, he states Baazov may have the flexibleness to continue doing acquisitions, for example taking another swing at PartyPoker, now owned by GVC Holdings, which may give Amaya over 80 percent from the global internet poker market.