David Baazov Looking To Privatize Amaya Once More

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Tuesday, February 2nd, 2016 | Written by Stephen Smith

Many poker players have been scathing of the changes David Baazov has made to PokerStars since acquring the site back in 2014. Few, however, can question the extent he is prepared to go in order to realize his ambitions. That’s because the Amaya CEO has now made a bid to purchase PokerStars from his own company in an attempt to wrestle the business away from shareholders and return it once more firmly to the private domain.

$2.8 Billion Cash Bid

The Amaya CEO, David Baazov, bought PokerStars and its subsidaries for $4.4 billion in August 2014, and now 18 months later has made a $2.8 billion all-cash bid for the company. Soon after Amaya acquired PokerStars, shares in the company rose as high as C$53 ($38), but have since plummeted in value dipping to just C$18 ($12.88) recently. The value Baazov and a group of like-minded investors have now agreed to pay for each Amaya share is C$21 ($15), or roughly $3 higher than their price was at the time of his initial offer. That gives the company a valuation of $2.8 billion, although since news of the bid was released shares in Amaya have since risen by 20%.

Government Regulation A Factor

Over the past few years, online gambling and poker companies have been subjected to ever stringent regulation, licensing fees, and taxation which have increasingly cut into their profits. One of the requirments for a public listed company adhering to the law is that it stays away from those “grey” markets that views their business model as illegal. While PokerStars has complied with these requirements, the site still operates in a number of important unregulated markets which have not yet reigned in the site’s operations. Most notable of these is Russia, which generates important revenues for the site, but should the country subsequently decide to target PokerStars it would be compelled to quit the market. This, however, is not the case for a privately owned business.

Shareholders Preventing Innovation

Another important reason suggested for David Baazov moving to make Amaya and PokerStars a private operation is that Amaya’s business has suffered of late because of the short term profit needs of its shareholders. Previously, PokerStars had a long-term strategy model that placed its customers and market share acqusition first, but this has not played well with its profit hungry stakeholders who are looking to make more instant returns.

The PokerStars VIP Rewards which were stopped suddenly and invoked a dramatic backlash from the site’s legion of online grinders, for instance, may have had a less detrimental impact had the business the luxury of phasing the program out over a longer period of time. Amaya’s lackluster quarterly earnings, however, probably forced the company into taking a more direct and confrontational approach in an attempt to appease its shareholders.

A Blessing For PokerStars

Needless to say, some analysts have already started to suggest that Baazov’s bid for Amaya will inevitably benefit PokerStars players who will once again profit from innovations and sweeping changes with them in mind. One gaming entrepreneur who subscribes to this view is none other than Global Poker Index CEO Alex Dreyfus, who explains:

“Innovation and growth need investment and taking risks. PokerStars has enough funds to invest, but had the obligation to show analysts immediate return. I can sense that with this financial move, David Baazov will re-invigorate the poker landscape.”

Possibly Impact US Market Entry

While a number of reasons have been suggested as to how PokerStars may benefit from Baazov privately owning Amaya, there are also other factors which may end up negatively impacting the business. This includes a possible reevaluation of PokerStars’ license to operate in New Jersey, with one possibility being that the process could be significantly delayed, or may eventually fail all together the second time round. Nevertheless, while PokerStars returning to the US will be an important parts of Amaya’s overall business strategy, the company may see its flexibility to operate in global regions as sufficiently important enough to risk the US market.

Nothing Final Yet

As of yet, Amaya and Baazov have not been involved in any formal talks, and there is no guarantee that the proposed deal will be agreed. Amaya did say, however, that it had received a “non-binding indication”, and that a committee of independent directors would be organized to review the proposal and any other alternatives available. Some analysts have suggested that the offer may present an enticing option for Amaya, though, and as Desjardins Securities analyst Maher Yaghi explains:

“..it is worth pointing out that the continued strength in the U.S. dollar is a potential headwind for the company’s European poker business. In addition, the company’s elevated leverage in an environment of increasing credit spreads is another factor for shareholders to consider.”