The $4.9 billion-dollar acquisition of PokerStars and Full Tilt Poker by Montreal-based Amaya Gaming (AYA.T), was the stuff of legends.
Amaya Gaming founder David Baazov came out of nowhere and managed to borrow $3.0 billion to initiate the David-versus-Goliath takeover of the online gambling giants’ parent company, the Rational Group.
The move made Amaya the world’s largest publicly-traded online gambling entity and the stock more than doubled in value by November that year.
There was only one thing standing between Amaya and world domination, online poker is dying.
That aside, there were other issues beginning to surface even at that time. In December 2014, the Quebec securities regulator got antsy about some trading that took place 2.5 weeks before the acquisition was announced and raided the company’s office in Montreal.
Baazov continued to claim his innocence while struggling to live up the moniker, “king of online gambling”, given to him in a Forbes article.
I don’t think Baazov was prepared for the work ahead of him as evidenced by Amaya’s woeful bottom line.
When Amaya released Q2 financials in June 2015, the company showed net earnings of $214 million, but $171 million came from discontinued operations, leaving Amaya with net earnings from operations of $42.6 million. Not the fortunes Baazov had been promising, in fact, it was only a 14% increase from Q2 2014.
Then company came out with reduced guidance numbers in November 2015 and the shares took a 33% hit to settle at $21.10.
By the end of January 2016, shares in Amaya were sitting at $14.00, the same value they were before the PokerStars acquisition.
The company was not doing well.
So, in February 2016, Baazov came forward to offer a $21 per share buyout to take Amaya private in a proposed $2.8 billion-dollar deal didn’t make any sense to me so I wrote about it and the very large possibility that Amaya, leveraged to the gills, could fall flat on its face.
The markets felt different, however, and drove up Amaya’s share price 23.68% to $18.54 during trading on the morning of Baazov’s ballsy takeover announcement.
Amaya’s independent directors went on the hunt for strategic alternatives to Baazov’s proposal.
By March 2016, the Autorité des marches financiers (AMF), Quebec’s securities regulator, filed 23 charges against three companies and three individuals, with five of those charges being leveled at Amaya CEO David Baazov.
The charges were the result of two years of investigation and claimed that Baazov was the main source of information about impending acquisitions that 12 business associates, friends and family members used to trade on and rake in nearly $1.5 million in profits over five years.
Baazov was given the soft boot in August 2015 when he went on a voluntary leave of absence from the company and was replaced by Rafi Ashkenazi as CEO. Baazov retained his shares in the company however.
In October, a British betting company, William Hill, walked away from a proposed merger with Amaya, sending the company scrambling for options to pay a deferred US$400.0 million-dollar payment against the debt it took on to acquire PokerStars parent company, the Rational Group.
Baazov came back in November with a sweetened offer for Amaya where he said he would buyout Amaya shares at a premium of $24 per share for a deal valued at US$3.48 billion.
Under the deal, Amaya would pay about US$200 million of the US$400 million deferred payment on or around November 18, 2016, and the new entity would cover the remaining US$200 million when the deal went through.
When one of the four companies Baazov claimed had been backing his takeover bid said they never heard of Amaya, the deal began to unravel. Clearly indicated by his follow-up bid which nixed another backer without any explanation.
The remaining backers, Head and Shoulders Financial Group and the Goldenaway Group, were private and based out of Hong Kong which made it difficult for Amaya’s board to verify the financial health of their proposed buyers.
When grilled by the Globe and Mail, Ricky Lai, Goldenaway’s director, stated the investment details had yet to be finalized and there would most likely be more than three backers eventually behind the bid.
Amaya activist investor, SpringOwl Asset Management, did not like the deal at all. In fact, SpringOwl CEO Jason Ader commented, “If we have a credible bid with transparency, then we should consider it. But the current price seems low and the lack of transparency and the information about the sources of funding raises a lot of questions.”
All the vagaries gave Amaya’s board pause. Enough of a pause that Baazov got stonewalled during negotiations and dropped his bid later in December, claiming, “…during the discussions it became evident that the share price premium demanded by certain shareholders exceeded the price at which my investors and I would be willing to complete a transaction. After consulting with my advisors, I determined that the best course of action for me and Amaya would be for me to end my attempt to purchase the Company.”
With that, Baazov had had enough and began a wave of sell-offs resulting in an announcement today he sold off two-thirds of his remaining shares in Amaya for a cool $267.7 million.
This transaction still leaves Baazov with a 3.8% chunk of the company’s stock.
Amaya’s financials are vastly improved since Baazov’s exit. Ashkenazi is proving himself to be a leader that will actually build shareholder value where Baazov was more a brash personality with a knack for making deals.
If Amaya continues to focus on its other verticals outside of online poker, which seems to have crested and now provides approximately 70% of the company’s revenue, it will be able to build an online sports/casino betting segment that could supplant poker’s hold on the company’s bottom line and create a growth enterprise for investors.
Is Baazov guilty of insider trading? We may never know, but one thing I do know, both Baazov and Amaya will ultimately prosper from his departure.
FULL DISCLOSURE: None of the companies mentioned in this article are clients of EQUITY.GURU and the author has no connection to them.
Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.