What’s it called when you own over 18% of a near $5 billion company but you’re really rooting for the stock to fall so you can take it private again? Some form of cornering the market? It looks like that’s what Amaya CEO David Baazov is about to do with his C$2.8 billion bid for the rest of Amaya’s shares. It would reportedly be an all-cash C$21 per share offer. Amaya is currently trading at just below C$18.50. If the deal goes through, it’s a 13.6% gain, not too shabby.
At first glance, taking a private company public for $4.9 billion and then taking it private again for C$2.8 billion seems inefficient at best and a big blunder at worst, until one realizes, as Forbes reported back in 2014, that Baazov hardly spent any of his own money in Amaya’s acquisition of Rational Group but got all the benefit of equity gains. Now he can take those gains and use them to buy the whole company.
You’ll remember that back in June 2014, Amaya took the nuclear option when it acquired Rational Group, including Full Tilt Poker and PokerStars from Israeli-Canadian Isai Scheinbreg for $4.9 billion. (Just an aside, his name is really Yishai, as in father of King David, commonly anglicized from the Hebrew as Jessie. Isai sounds Japanese and I’m not sure why it stuck.) Now, having erased more than half of its value, Baazov wants to take it private again. That tells me he thinks shares have hit a low and he’s going all in. That is reason enough to buy, given that shares are well below his offer.
Dear Reader: Speculation Follows
The chances that the deal won’t go through are slim because this all looks so weird that it might be planned. Amaya could have seriously overpaid for Rational Group (possible), or the difference could have simply been a collateral deposit by Amaya to Scheinberg, who would return it through some kind of back channel once Rational Group went private again. I have no idea how that would be done, but Israeli Jewish businessmen are pretty slick when it comes to moving money around in creative yet legal ways. I am engaging in stereotyping here, but as an Israeli Jew myself I’m taking the prerogative and hoping it is not qualified as “hate speech”. I am, however, not a businessman, which is why I don’t know how he would do it.
The biggest problem with taking Amaya private is its debt, which totals about $3.3 billion, more than its current market cap or Baazov’s offer. Is Baazov willing to pay that all off with his partners just to take the company private? Maybe, but it is also possible that the “deposit” given to Scheinberg could be put back into the company and used somehow to pay off the debt quickly. The Scheinbergs will probably not be officially or legally involved, but it looks like they will be involved under the table somehow. Amaya denies it, and for good reason. In order to get a license to operate in the United States, the Feds demand that the Scheinbergs be expunged from the record. He was caught trying to (*gasp*) do business in the US against inane some anti gambling law passed by angelic politicians from on-high concerned about everyone’s religious wellbeing and salvation.
But if Scheinberg is involved behind the scenes, perhaps by getting loyalists of his onto the board after Rational Group is reprivatized, then he would be able to introduce PokerStars and FTP into the US market by proxy. He can’t be directly involved officially because the US government is out to crush him.
Forbes reported the whole fantastical nature of the Rational Group acquisition of Amaya back in 2014 with some interesting details.
Operating like [Baazov] held all the cards, Baazov proposed what would seem to be a crackpot scheme. Despite Amaya’s stock trading just under $7, he wanted Blackstone and other investors to buy shares at nearly $18 apiece and securities convertible into Amaya stock at about $21.
If a CEO in the history of capitalism had ever managed to sell equity for such a sky-high premium, the top minds at Blackstone’s credit group had never heard of it. They abruptly ended the meeting and threw Baazov out on the street. “We left the building, and my guys were having heart palpitations,” says Baazov.
So a guy from a tiny company comes in and tries to pull off a leveraged buyout at sky-high premiums to the point where the potential underwriters actually throw him out of the building. He succeeds nonetheless, all while seemingly knowing he would, without spending any of his own money, and then, a year and a half later, he makes an offer to take the company private again when shares go back down. Baazov is also an Israeli born Jew, he of Georgian roots, perhaps related to the famous Georgian Zionist activist David Baazov of the early 20th century.
So we have two Israeli-Canadian businessmen, one of which is being pursued by the Feds and the other is able to pull off a fantastic leveraged buyout nobody thought possible at the time. Scheinberg is one of the most private men in the gaming industry, and with discretion being the better part of valor, it is not that much of a stretch to speculate that the two have something going on behind the scenes between them. In fact, Scheinberg is so private that he wouldn’t even disclose any financial details behind Rational Group even when Baazov had successfully bagged the $3 billion from Blackstone demanded for starting negotiations. Now who would fork over $3 billion for a company without having any information about its finances? Someone taking a leap of faith, or someone who has something else going on behind the scenes.
Is any of this legal or illegal? I have no idea, as I am not a lawyer. I would guess it’s all technically legal because neither Baazov nor Scheinberg are stupid. And when two successful Israeli –Canadian Jewish businessmen come together in a deal where huge amounts of money are changing hands under unique circumstances, it is safe to bet that something else is going on behind the scenes. In other words, this could all just be the Scheinbergs’ way of serving the American gaming market by proxy, an honorable endeavor. That’s why the re-privatization deal will probably go through, the debt will probably be paid off quickly through some backchannel, and it’s worth it to buy Amaya now and take home some of that premium.
Model Portfolio Update
The Super Bowl Betting Indicator is flashing bright neon green. Total bets in Las Vegas came in at $132.5 million, shattering 2014’s record of $119.4 million. The boom is on, the decline in stocks looks temporary, and I am adding a 5% position in Amaya at $13.28 a share.
