Shares of Amaya Gaming Group Inc. soared more than 40 per cent after the suburban Montreal-based company announced a $4.9-billion (U.S.) deal to buy the operator of PokerStars and Full Tilt Poker.
Amaya shares jumped $5.96 (Canadian) to more than $20.04, or 42.3 per cent on the Toronto Stock Exchange in morning trading Friday before easing back slightly.
The company said the all-cash deal to buy Oldford Group Ltd., parent of Rational Group Ltd. will transform Amaya into the biggest publicly held online gambling entity in the world.
Online poker is a $4-billion (U.S.) global business.
Online poker platforms PokerStars and Full Tilt Poker boast more than 85 million registered players on desktop and mobile devices.
The acquisition will allow PokerStars to renew an on-shore push into the United States, where it has been entangled in regulatory and legal difficulties.
Amaya is currently present in only three states: New Jersey, Delaware and Nevada.
Other states, including the potentially huge market of California, are studying legislation to allow online gambling.
But Isle of Man-based PokerStars has been stymied in its attempts to re-enter the market after a U.S. Department of Justice crackdown on online poker in 2011.
Isai Scheinberg, described by federal prosecutors as the founder and owner of PokerStars, and 10 other online gambling executives were indicted three years ago on charges of conspiring to break the Unlawful Gambling Enforcement Act, which bans banks and other institutions from accepting payments for illegal online gambling.
Mr. Scheinberg’s son, Mark, founded PokerStars owner Oldford Group; under terms of the deal with Amaya, he and other principals in the company will sell their stock and resign from the company and all of its subsidiaries, but management will stay on.
In 2012, PokerStars paid $731-million to settle money-laundering charges with federal prosecutors, but the company did not admit to any wrongdoing.
Attempts to enter the New Jersey market have proven difficult for PokerStars after the state gambling enforcement agency suspended a review of its application for an online gambling license for two years; the regulator cited PokerStars continued association with Isai Scheinberg.
Amaya said the deal will help the entry of PokerStars and Full Tilt Poker into regulated markets where Amaya is already present, especially in the United States.
“At first glance, it seems like a good deal for PokerStars and perhaps a bit of a gamble for Amaya,” said Frank Legato, editor of Global Gaming Business magazine.
“The Scheinbergs were getting no place fast in the U.S. market, because no one in the really lucrative markets wants to make agreements with so-called ‘bad actors’ who continued U.S. operations after the Unlawful Internet Gaming Enforcement Act was passed in 2006. Isai Scheinberg is still under indictment in the U.S. in the 2011 case and has not been back to the country.
“It was becoming less likely that tribes in California, potentially the most lucrative online market in the U.S., or the regulators in New Jersey, already up and running, were going to allow the Scheinbergs to operate in the U.S., so this deal gives them a way out.”
The proposed transaction is somewhat of a risk for tiny Amaya because of the $2.9-billion in debt it is taking on to finance the deal, Mr. Legato said in an e-mail.
“This is a transformative acquisition for Amaya, strengthening our core B2B operations with a consumer online powerhouse that creates a scalable global platform for growth,” said Amaya CEO David Baazov, 33, who joined the company two years after its founding in 2004.
“Mark Scheinberg pioneered the online poker industry, building a remarkable business and earning the trust of millions of poker players by delivering the industry’s best game experiences, customer service and online security.”
Pointe-Claire, Que.-based Amaya – 2013 revenue: $155-million – grew through acquisitions, from a provider of betting equipment and systems, into a major player in Internet gambling. Deals included Cryptologic Ltd. and gambling software provider Chartwell Technology Inc.
Amaya’s portfolio of products and services also offers casino, poker, sportsbook, platforms, lotteries and slot machines.
Amaya’s biggest deal to date is the 2012 acquisition of casino supplier Cadillac Jack for $177-million.
But the PokerStars agreement is “out of the park,” said Ralph Garcea, an analyst with Global Maxfin Capital.
“This gives them a global platform overnight.”
Amaya should have no problem managing the debt it is taking on to finance the acquisition, given its steady cash flow, Mr. Garcea said.
The new combined company would have had $1.3-billion in sales and $474.8-million in earnings before interest, taxes, depreciation and amortization last year, according to Amaya’s statement.