Shares in Amaya Inc. fell the most in nearly six months on Tuesday after the Montreal-based online gambling company announced that talks with potential suitor William Hill PLC had been abruptly called off.
The aborted merger talks raised doubts about the company's ability to grow as a standalone business. Some in the analyst community fretted about slowing growth in the online poker market, as the company grapples with a heavy debt load, legal woes and the uncertainty of a continuing insider trading controversy.
On Tuesday, Amaya shares fell by more than 8 per cent to $18.65 a share on the Toronto Stock Exchange, as the company shut down its strategic review, effectively closing the door on the prospect of an imminent sale.
"Upon the unanimous recommendation of the special committee, the board concluded that, at this time, remaining as an independent, publicly traded corporation best positions Amaya to deliver long-term shareholder value," Amaya said in a release.
On Oct. 7, Amaya announced it was in talks with British-based competitor William Hill about a merger. The stock ran up from roughly $21.50 a share to just below $23 at one point, as investors anticipated a premium takeover offer.
"I was kind of surprised that somebody didn't buy it, given it's one of world's premier poker assets," said an analyst, who spoke on condition of anonymity.
"It doesn't appear as though another buyer is going to show up any time soon," he added.
The same analyst also added that Amaya likely had a very motivated seller in private equity company Blackstone Group, which has a sizable investment in both the common stock and the preferred shares through GSO Capital Partners, its credit wing. The conversion price on the preferred shares, of which Blackstone initially bought $600-million (U.S.) worth, is currently $21.32 (Canadian) a share.
"In the event of a takeover or merger, the conversion price changes quite a bit in their favour," the analyst said, estimating the conversion price would have been around $17 had a deal with William Hill materialized.
The talks appear to have been called off, too, at the behest of William Hill's biggest shareholder, analysts said. Even before Tuesday's announcement, hedge fund company Parvus Asset Management voiced public opposition to the deal in a public letter. Some of its concerns included Amaya's slowing growth prospects, and hundreds of millions of dollars in potential legal liability that the company faces over an outstanding lawsuit in the United States.
On two separate occasions this year, shares in Amaya rose on talk of takeover transactions and then fell once those deals faded away. In February, then chief executive officer David Baazov declared an interest in taking the company private with a group of investors. A formal takeover offer never materialized.
In March, he was criminally charged by Quebec's securities regulator, the Autorité des marchés financiers (AMF) with illegal insider trading and a host of related charges. The charges have not been proven in court.
On Tuesday, Amaya floated the possibility that Mr. Baazov, who resigned in August, could take another run at the company, but analysts are skeptical.
"Amaya has been informed … that [Mr. Baazov] continues to be interested in acquiring all of the outstanding shares of Amaya," the company said in its statement.
Meantime, the firm's own special committee added that it "has not received an offer from Mr. Baazov that it or its advisers believes is capable of resulting in a completed transaction." Another analyst told The Globe and Mail that was code for it being highly unlikely a formal offer will actually materialize from Mr. Baazov.
Amaya declined an interview request with The Globe and Mail. Mr. Baazov also declined to comment.
Amaya also faces the future with a highly levered balance sheet, carrying roughly $2.3-billion (U.S.) in net debt. Much of that debt was incurred when the company paid $4.9-billion to acquire Rational Group, the owner of PokerStars in June, 2014.
Close: $18.65, down $1.68