David Baazov, the Canadian entrepreneur who masterminded his modest gambling tech company's takeover of the world's dominant player in online poker just 18 months ago, now wants to take the business private in an all-cash $2.8-billion deal.
Mr. Baazov, chairman and chief executive officer of Montreal-based Amaya Inc. – owner of the popular PokerStars brand – said in a news release on Monday that he and an unnamed group of investors, with whom he is "in discussions," plan to make a takeover offer for all the shares of the company at $21 a share, for a total valuation of about $2.8-billion.
If a proposed offer at that price were to be made, it would represent a 40-per-cent premium to Amaya's closing price on Friday on the Toronto Stock Exchange.
Amaya's shares soared more than 27 per cent to $19 in early trading Monday in Toronto then eased back to $18.00, or 20 per cent, a sign of market sentiment that the potential offer is too low at $21.
No talks have so far been held between Mr. Baazov and Amaya, "the particular form and structure of the transaction have not been determined" and there is no guarantee that a transaction will go ahead or be consummated, the news release said. Mr. Baazov declined to comment to The Globe and Mail.
Amaya confirmed on Monday it has received a "non-binding indication" from Mr. Baazov of a planned bid and said it has set up a special committee of independent directors to review "any proposal that may be forthcoming, as well as other alternatives that may become available to Amaya."
Mr. Baazov currently owns 18.6 per cent of the outstanding shares of Amaya and options to buy 550,000 more shares, his news release said.
Craig Levett, a Montreal businessman who was an initial investor with Mr. Baazov in a predecessor company to Amaya, said in an interview that news of the intention to take Amaya private surprised him and that he is not involved in any partnership talks with Mr. Baazov.
Taking Amaya private would be "logical thing to do. I think the stock is undervalued. When people see a stock as undervalued, why not take it private?" he said, adding that he does not know whom Mr. Baazov is in talks with about a potential transaction.
In 2014, U.S. private equity giant Blackstone Group LP's credit arm, GSO Capital Partners, was a key financial backer of Amaya's surprise $4.9-billion (U.S.) takeover of PokerStars' parent company, Oldford Group Ltd.
But Amaya, which has been counting on the legalization of online gambling in major American states as a significant part of its growth strategy, has been hit recently by the negative impact of the strong U.S. dollar on its overseas – mainly European – customers as well as delays in the rollout of a new online sportsbook.
Last November, the company – which says it has 97 million registered players around the world – slashed its revenue and profit outlook for 2015. And last month it was hit with an $870-million verdict against it in Kentucky for alleged losses by state residents who played PokerStars games from 2006 to 2011. The decision is being appealed.
The stock price plummeted from the $37 (Canadian) range about a year ago to a low of $13.73 last week.
Amaya also faces the largest insider-trading investigation in Canadian history. Quebec's securities watchdog is leading a global probe into allegations that individuals with privileged information traded in Amaya shares ahead of the PokerStars deal.
A search warrant filed in Quebec court last year shows that the Autorité de marchés financiers (AMF) seized computers, e-mails and phone records from three Amaya executives, including Mr. Baazov, chief financial officer Daniel Sebag and an unnamed manager. Documents and materials were also obtained from three employees at Canaccord Genuity Securities and from 15 brokers in the Montreal offices of Manulife Securities.
Amaya has stated the investigation does not relate to personal trading by Mr. Baazov or Mr. Sebag.
Amaya and Canaccord have said they discovered no evidence of wrongdoing by employees and executives named in the AMF probe. The AMF has received a report from Manulife on its brokers' trading in Amaya stock and Manulife has said it is co-operating with regulators.
Amaya's share price nearly doubled in heavy trading before the June, 2014, announcement of the PokerStars deal and doubled again to more than $30 a share after the news broke.
Desjardins Securities analyst Maher Yaghi said in a research note Monday that while Mr. Baazov's planned offer might appear as potentially opportunistic to some observers, "it is worth pointing out that the continued strength in the U.S. dollar is a potential headwind for the company's European poker business. In addition, the company's elevated leverage in an environment of increasing credit spreads is another factor for shareholders to consider."
The potential offer is "below our fundamental valuation" of $28.50, he said.