Amaya Confirms Merger Talks With William Hill, Baazov Bid Apparently Off The Table

Reuters quotes two sources “familiar with the situation” who also said that former Amaya CEO David Baazov has abandoned his own bid for the company.

The Canadian AMF legal case against Baazov for insider trading has not yet been resolved.

Amaya’s Head of Corporate Communciations Eric Hollreiser told Reuters that the special committee set up by the board to analyze options “has not made a determination as to whether a transaction of any kind is in the best interests of the company at this time and will continue its review of alternatives.”

Amaya and William Hill confirm their mutual interest

Given the heightened scrutiny the company must be under after the AMF investigation, industry analysts must expect the Amaya board to play this strictly according to the rules–information will not be released lightly.

However, while this article was being written, Amaya and William Hill put out a press release confirming the Reuters report:

“Amaya has been undertaking a review of its strategic alternatives since February 2016. Over recent months, the Board of William Hill has been evaluating options to accelerate William Hill’s strategy of increasing diversification by growing its digital and international businesses.”

David Baazov is responsible for putting Amaya in play

When David Baazov decided to make his own bid to take Amaya private in February, he initiated a legal situation which could only end in Amaya being open to offers.

The LBO ambush

There is a long tradition in how to execute an effective leveraged buy-out (LBO). One of the most common options dating from the 1980s is the ambush where the board is basically made an offer with a “gun to its head.”

The bidder, with the CEO already on the team and the financing in place, makes the board an offer and gives it a short deadline to make a decision. This is almost always done when a company’s share price is in the doldrums, and the bid is higher than the shares have ever traded at.

The board is then forced to make a fast decision to accept the bid, which pays shareholders a 30 to 40 percent premium over the current share price, or risk the bidder walking away.

Or the long drawn-out auction

This strategy avoids an auction situation, which can all too easily result in negative consequences.

If the price paid is too high, then the company is overburdened with debt. This results in immediate disposals of subsidiaries and redundancies to raise cash and reduce costs.

Research and development may well be the first to suffer and the company can lose its market position, respect of customers and the enthusiasm of employees.

David Baazov made his bid apparently without the funds in place, so no ambush and deadline was possible.

The board correctly set up a special committee to analyze the potential bid, but then immediately looked around for other possible bidders as part of its fiduciary duty to shareholders.

The result may not be a pure auction, but several bidders have expressed their interest, over and above William Hill and GVC. Reuters says that Amaya “has received strong interest from strategic players and some private equity firms.”

The case for William Hill

William Hill has been at the center of gambling industry takeover action more than once in the last two years.

First, it tried to bid for 888, but was roundly rebuffed when the owners decided the offer price was far too low. Then it found itself the subject of a combined bid from 888 and the Rank Group.

William Hill immediately rejected the suitors, and without the support of the Will Hill board, 888 and Rank flinched from beginning a hostile takeover battle.

This corporate background places William Hill, which operates a poker room on the iPoker network, firmly in the market for PokerStars.

What is remarkable is that William Hill CEO Philip Bowcock is in the job only on an interim basis, after the sooner-than-expected exit of James Henderson in July.

No matter how competent Bowcock may be, engaging in a multi-billion acquisition that will have long-term strategic consequences for the company is an ambitious move for an interim CEO.

If this bid succeeds, Bowcock will undoubtedly be confirmed in his position.

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The case for GVC

GVC completed its acquisition of bwin.party in February this year. Since then, it has seen improvements in its poker business, but partypoker remains a relatively trivial revenue generator within the group.

Buying bwin.party for £1.116 billion ($1.4 billion) was a stretch for GVC, and even though there may be a solid corporate rationale for bulking up the company’s online poker business, paying a further couple of billion dollars for Amaya looks to be an ambitious financial move.

When Baazov announced his bid of CA$21 per share, CA$2.8 billion in total, Amaya’s share price was floundering at the bottom of its range. Baazov’s bid amounted to a 40 percent premium over the then share price.

On Friday Oct. 7, Amaya closed at CA$23.41, already above Baazov’s original bid. To gain control of Amaya, a bidder may have to pay a significant premium – maybe up to CA$30 per share.

At that price, Amaya’s market value would be CA$4 billion ($3 billion). Even though money is cheap and Amaya cashflows are strong, GVC may have difficulty finding financiers while it is still digesting the debt it raised to buy bwin.party.

Amaya and William Hill were at the stage where the press speculation legally obliged them to confirm their talks. If GVC is truly in a similar position, then it may well be forced to follow.

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