• Change-of-control clauses, looming litigation pose risks
  • Amaya CEO Baazov is weighing C$21 bid to take company private

Potential bidders for Amaya Inc., the world’s largest online poker company, may team up with management rather than submit their own offers, to avoid significant financial risk that include change-of-control clauses on the company’s debt and litigation in Kentucky.

Potential bidders, said to include Playtech Plc, have held discussions to join a takeover bid being planned by Amaya’s chief executive officer and chairman David Baazov rather than launching their own, according to people familiar with the matter. Playtech, founded by Israeli billionaire Teddy Sagi, is an online gaming software provider.

Pointe-Claire, Quebec-based Amaya said last month it had received a non-binding indication from Baazov that he was in discussion with potential investors to make an offer for the company valued at roughly C$2.8 billion ($2.1 billion), or C$21 a share. Baazov has yet to make a formal offer but remains intent on taking it private, the people said. 

Amaya is the parent company of the PokerStars, Full Tilt, BetStars, and StarDraft brands.

Among those who have already joined Baazov’s bid is Amaya’s executive vice president for corporate development, Marlon Goldstein, the people said.

Representatives for Playtech, Baazov, and Amaya were not immediately available for comment.

Debt Hurdles

A primary hurdle financial players or strategic rivals will face in making a bid are change-of-control restrictions on the bulk of Amaya’s $2.6 billion in debt.

The change-of-control clauses limit any one holder from owning more than 35 percent of the company’s voting shares outside of Baazov and two of the company’s investors, BlackRock Financial Management Inc. and GSO Capital Partners, according to regulatory filings.

While Amaya’s lenders, including Barclays Plc, Deutsche Bank AG and Macquarie Capital, might not trigger those clauses, it is a risk the bidders would have to consider because the debt would need to be renegotiated by a rival bidder at a time when the debt markets are constrained.

Litigation Risk

Another hurdle to making the numbers work on Amaya is ongoing legal action in Kentucky after a judge there awarded $870 million in damages to the state relating to money spent by Kentucky residents at Amaya’s subsidiary PokerStars. Amaya is appealing the ruling but the litigation increases risk for companies interested in a takeover.

Despite those risks, other bidders may emerge or a higher bid from the Baazov group might be needed to consummate the deal, said Kevin Wright, an analyst with Toronto-based Canaccord Genuity.

He said a C$21 a share bid represents a multiple of 9 times forward earnings while Amaya’s peers trade at nearly 20 times. He said he believed the early warning report provided the company with time to get its ducks in a row but also to give other bidders an opportunity to consider a rival bid.

“We believe that a bid remains likely,” he said in a note to clients Wednesday. “We note that in our view a C$21 bid may not receive enough support so a higher bid may be required.”

Amaya’s board has established a special committee and retained Barclays Capital Canada Inc. to act as financial adviser to assist in considering any proposal that may be forthcoming. It has also retained an independent valuation adviser, Moelis & Co., and implemented restrictions on management, including Baazov, on issues like how confidential information is treated and communications with external parties, while management’s bid is outstanding.

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