When Intertain Group Ltd. revealed last week in a press release, alongside its quarterly financial results, that it had received "many expressions of interest" in a potential sale of the online gambling company, David Heden took note.
Mr. Heden, chief investment officer of hedge-fund company HGC Investment Management, runs one of Canada's best-known merger arbitrage funds. Over the past three years, he's invested in hundreds of mergers and acquisitions transactions and scrutinized thousands more.
In his view, Intertain's release and subsequent conference call with analysts raised "a red flag."
On the call, there was repeated talk of a possible sale of the company – either in whole or in part – by chief executive officer John Kennedy FitzGerald, but few details were given on who the buyer might be and when a transaction might happen.
"It's going to be, like Donald Trump would say, 'interesting,'" Mr. FitzGerald said in the call about how the process might pan out.
Talk of a buyout ignited the stock, with Intertain surging 18 per cent on March 10 – one of its biggest daily increases ever as a publicly traded company.
"People who have bids on their company – they stay quiet. They don't say a word. They run a quiet sales process. They get the best deal they can. They announce it and it's a shock," said Mr. Heden, whose firm has no position in Intertain's stock.
"People don't go screaming and yelling that they can do a deal."
Mr. Heden is not the only individual on Bay Street who has doubts about Intertain.
A large Bay Street fund manager said he had heard chatter about the company, but felt concerns might be overblown: "I know some people have been saying, 'Oh yeah, there's probably no bid.' That's a stretch to say. I think there would be bidders."
In an interview, Intertain chairman David Danziger shot down the notion that the reported expressions of interest were not genuine, saying that company had been approached in the past month or so by a number of parties. And while a transaction is not imminent, the decision to publicize a possible sale of the company is one he feels will ultimately net a higher price.
"As a board, if we decide that it's in the interest of the shareholders to sell the company, I think we're obliged to get the most money we can for it. And if we think we're going to get more money from it by running a public process, that's what we should be doing," Mr. Danziger said.
Intertain has faced turmoil since it was the target of a short-seller report penned by New York-based hedge-fund company Spruce Point Capital Management in mid-December.
The report, entitled All Bets are Off, was critical of the company's business model of making what Spruce Point claimed were questionable acquisitions that enriched management through incentive payments based on the value of deals but added little value to the underlying business.
An internal independent committee at Intertain concluded that the "allegations and innuendo" of Spruce Point regarding "the quality and financial performance" of the company were "grossly erroneous." Still, Intertain announced it was eliminating its management incentive plan and said that it would eventually replace Mr. FitzGerald.
"If he [Mr. Heden] feels that management isn't credible, that's fine," Mr. Danziger said.
"The reality is that we've already announced that management is stepping down."
Intertain isn't the only Canadian online gambling firm where questions have arisen over whether it's in play or not.
In February, Amaya Inc. – one of Intertain's biggest shareholders – disclosed that CEO David Baazov was planning a bid to take the company private in a deal to be made public by early March. On a call with analysts earlier this week, Mr. Baazov reiterated that a bid was coming, but declined to elaborate on why a transaction hasn't transpired yet.