Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

The CEO of the world's biggest online poker company just showed his hand.

David Baazov said Monday that he intends to make a cash offer for Amaya, the owner of gaming sites PokerStars and Full Tilt, with a bid valuing the company at C$2.8 billion ($2.3 billion). 

Chips are Down
Amaya shares have slipped lately and it is now the target of a management buyout.
Source: Bloomberg

Amaya's shares surged as much as 32 percent to C$19.75, still below the C$21-a-share offer Baazov is discussing with potential investors. From all angles, that looks like a bargain, especially since the consensus 12-month target price is C$34.78, according to analysts surveyed by Bloomberg. 

Before the potential deal reveal, Amaya's stock price had dropped more than 60 percent from its all-time high in November 2014, a few months after the company had completed its $4.9 billion acquisition of Rational Entertainment,  the parent of Pokerstars.  Its forward price-to-earnings multiple was just 6.8, battered by weak third-quarter earnings and currency headwinds. So impatient investors may be receptive to Baazov's takeout offer at a PE multiple of 9.5, or a premium of 40 percent.

But perhaps they shouldn't be as quick to oblige: That's well below the global industry average PE multiple of 14.8. 

All In
A management buyout of Amaya would be one of the larger internet gaming deals.
Source: Bloomberg
* Excludes deferred payment

The 35-year-old Baazov, who says he's not much of a poker player according to this Forbes profile, is Amaya's biggest shareholder with an 18.6 percent stake. His own net worth -- based solely on Amaya shares -- whipsawed from $130 million before the PokerStars deal to more than $825 million last year to roughly $260 million before he announced the exploration of a potential buyout. "As the online gaming industry continues to mature, it is my belief that it is in the best interests of Amaya to be positioned as a private company," Baazov said in that statement.

He's not the first CEO to subscribe to that school of thought. It's widely argued that companies can better focus on long-term growth away from the glare of the public spotlight and the grind of trying to meet or exceed earnings expectations every quarter.

But his personal winnings -- and those of potential investors, which may include GSO Capital Partners (Amaya's biggest owner of preferred shares and the credit arm of Blackstone Group) -- are set to be bountiful if the company's earnings before interest, taxes, depreciation and amortization grow anywhere near the 15 percent in 2016 and 18 percent in 2017 expected by 10 analysts surveyed by Bloomberg.  This could be even greater if other U.S. states join New Jersey in allowing PokerStars to offer online gambling

Institutions led by BlackRock and PointState Capital control more than 70 percent of the company's stock. They, and other shareholders, won't be able to roll over their equity ownership if Amaya becomes a private company.

So rather than cash in on immediate gains, they -- and Amaya's independent directors -- are better off demanding a richer price before folding. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net