- Amaya Gaming is buying the Rational Group—PokerStars and Full Tilt—for just under $5bn.
- The stunning business coup will make CEO David Baazov the most powerful man in poker.
CEO of Amaya Gaming David Baazov has reached for the stars and got there—the owners of the Rational Group have agreed to sell the company, including PokerStars and Full Tilt for $4.9 billion.
In the immediate term, players should not notice the transition. “Rational Group’s executive management team will be retained and online poker services provided by PokerStars and Full Tilt Poker will be unaffected by the Transaction, with players continuing to enjoy uninterrupted access to their gaming experience,” explained the press release.
Rational Group CEO Mark Scheinberg will be leaving the company. “I am incredibly proud of the business Isai and I have built over the last 14 years,” he said, and went on to reassure that the “values and integrity which have shaped this company are deeply ingrained in its DNA. David Baazov has a strong vision for the future of the Rational Group which will lead the company to new heights.”
Mark Scheinberg and his father Isai own their shares in the Rational Group through their holdings in an investment vehicle called the Oldford Group. On the announcement of the deal the Oldford Group has been paid $50 million, with the remainder of the price to be paid following the deal’s approval subject to certain conditions.
Until now Amaya has pursued a business to business (B2B) strategy growing through acquisitions such as the purchase of the Ongame poker network. It retained Ongame as a network, but divested itself of its own poker room, preferring to act as a service provider to other business.
The size of this acquisition will instantly make Amaya the most valuable listed online gaming company in the world—and the biggest business to consumer (B2C) online poker business in the world, a whole new strategy for Amaya.
The potential for getting PokerStars access into the US market provided a key rationale for the deal. “Amaya believes the Transaction will expedite the entry of PokerStars and Full Tilt Poker into regulated markets in which Amaya already holds a footprint, particularly the U.S.A.”
The delay of a New Jersey license for PokerStars was largely because of objections to individuals rather than the company itself.
The deal announcement also pointed to other growth plans. Amaya intends to “expand the nascent Full Tilt Poker casino platform” and “support Rational Group’s growth initiatives in new gaming verticals, including casino, sportsbook and social gaming, and new geographies.”
The deal has been signaled by rumors in the markets for over a fortnight, but many industry commentators were skeptical that Amaya could arrange the finance to complete such a huge transaction.
David Buys Goliath
A year ago, Amaya’s market value was around $700 million. The company’s share price started its recent explosive growth after Q1 results showed a massive increase in its profit margins.
Over the last few weeks the upwards trajectory continued. After yesterday’s one day gain of over 17%, trading was halted on the Toronto Stock Exchange pending the deal announcement.
The deal terms are as complex as any for a transaction of this size, and include funding from several financial institutions, including GSO, a part of the Blackstone Group L.P.—the largest alternative investment fund in the world.
Where did the money come from?
- $2.1 billion secured credit from Deutsche Bank AG New York , Barclays Bank PLC, and Macquarie Capital (USA) Inc.
- $800 million secured second lien term loan from Deutsche Bank, Barclays, and Macquarie Capital, with participation from GSO and the Investment Manager.
- $1 billion to be raised from a private issue of convertible preferred shares.
- C$500 million from an additional private issue.
- Remainder of the balance payable in cash.
Before the deal can be completed, it needs to be approved by Amaya’s shareholders. The annual shareholders meeting has been postponed until July 30 and will now also be a special meeting where the necessary elements of the deal can be approved. The deal is expected to close on or about September 30, 2014.
And so the old guard changes—Isai and Mark Scheinberg are no longer the most powerful men in poker. After a stunning business coup, David Baazov now wears the crown.