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Amaya Investigation: New Details, But No Developments
Amaya Investigation: New Details, But No Developments
The Globe and Mail reported last week that Yoel Altman “has come under the scrutiny” of Quebec’s Autorité des marchés financiers (AMF) during the AMF’s investigation into trading around Amaya’s acquisition of Pokerstars.
Amaya Trading Investigation: New Details Emerge, But Larger Picture Remains Incomplete
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Altman is described by the Globe and Mail as a “close friend” of Amaya CEO David Baazov and someone who “wore a number of hats as an outside consultant” to the company. The report notes that “[t]here has been no indication from FINRA or the AMF of any wrongdoing by Mr. Altman”.
The report does not appear to represent any new development, but rather additional information regarding the launch of the AMF inquiry in December 2014.
In addition to the AMF investigation, the Financial Industry Regulatory Authority (FINRA) is also understood to be examining trading in Amaya leading up to the PokerStars acquisition.
Bevy of public information creates high investigative hurdle
Before diving into what we know about the AMF and FINRA investigations, two things are worth noting:
- The common characterization of Amaya’s stock having “more than doubled” in advance of the announcement is technically correct but reductionary to the point of being misleading. A more accurate range of the movement driven by the acquisition speculation would be from $8 to $12.
- The movement of Amaya’s stock during the period in question can be tracked reasonably tightly to publicly-available information.
The chart below (click for a larger version) illustrates both points. Annotations follow.
- April 1: Shares of Amaya – which had been trading in the $7-$9 range in the six months prior – nosedive on weaker-than-expected earnings.
- April 16: Amaya begins to pull out from the bottom of $5.81 on news of gaming machine shipments.
- May 2: Amaya rallies back above the $7 mark on news of New Jersey lab approvalfor Amaya slot titles.
- May 15: Amaya reports reasonably strong earnings for 1Q14. The company also announces new credit facilities that give the company access to some $300mm in funds. Critically, the terms of the new credit provide the lenders with the ability to purchase up to 4 million shares of Amaya at CAD$15 per share – even though the stock is trading at around CAD$8 at the time.
- May 16: During an earnings call, Amaya executives make several commentssuggesting a major acquisition is a possibility (more on that below).
- May 20: A widely-cited research note suggests that Amaya is considering a significant poker acquisition.
- May 23: The first speculation of the PokerStars purchase appears on Stockhouse: “has anyone heard the rumour Amaya may be buying PokerStars.net…someone I know high up at a major brokerage firmy mentioned this to me the other day…could this be what’s behind the sudden move…any thoughts?”
- May 24: CalvinAyre.com – a site regarded as well-connected within the global online gambling industry – publishes the first article speculating that Amaya was angling for a PokerStars takeover.
- May 26: Amaya publicly addresses the stock surge and acquisition rumors.
- June 12: Bloomberg reports that Amaya is “near an agreement” for PokerStars prior to markets closing.
- June 12: Amaya announces the PokerStars acquisition after markets close.
Connecting the dots
Looking back at the activity starting with the earnings release on May 15, it’s relatively easy to see how someone paying attention could connect the dots to a major acquisition.
And while those dots may not have led to PokerStars directly, (i) there are only so many major online poker platforms available and, (ii) any major acquisition would reasonably have been expected to spark upward interest in Amaya.
As for those dots: They start on the 15th when Amaya announces that they’ve opened up new credit facilities that brings the total they can draw to north of $300mm.
That’s a large pile of cash for a company whose market cap at the time was something in the neighborhood of $500m.
And part of the financing agreement for the new debt involves Amaya granting the lender 4 million share warrants at CAD$15 – nearly double the price of AYA on the day the debt deal was announced.
On the next day’s earnings call, Amaya executives are asked by two separate analysts about the motivation for amassing such a large war chest. Note that both analysts speak of the acquisition as a given:
Eyal: Okay, good. Obviously, you’ve expanded your capacity. It’s fairly significant, between the amount of cash you have on the books and the actual debt facilities you’ve announced last night. Is there any more you can say outside of just saying it’s strategic acquisitions? It seems like it’s a fairly sizeable amount. You have capacity for north of $300 million of cash at this point.David Baazov (Amaya CEO): All I’d really comment is the reality is at this time, we are bolstering the balance sheet. Historically, we’ve grown via organic growth as well as via acquisition. As I stated on the call, we are looking at this from a strategic perspective.[…]Ralph: Okay. Again, to the extent you can give some color, on the strategic acquisition, are you going to be looking at increasing your footprint in Europe? Is it going to be land-based and/or interactive?David: I would just say that our focus is interactive and it’s global.Robert: No, the 4 million warrants that are provided alongside the mezzanine debt.Daniel Sebag (Amaya CFO): It’s part of the overall return negotiated between the lender and the borrower.
And Baazov’s opening remarks can be read – at least in hindsight – as a clear preview that a major acquisition was in the works:
Finally, yesterday, we announced the debt refinancing, adding additional cash to our balance sheet for working capital and corporate purposes. We believe we are now very well positioned to execute on strategic initiatives, including supporting our organic growth, and we also have the flexibility to capitalize on strategic acquisition opportunities that may arise.Acquisitions have been an integral part of our strategy since 2011. However, we are selective. At this time, we would really be examining opportunities that would significantly bolster our solutions offering while providing value to our shareholders.During the first quarter, we announced the hiring of Marlon Goldstein as our new Executive Vice President of Corporate Development and general counsel. Marlon was a principal shareholder in the corporate and securities practice at the international law firm of Greenberg Traurig, where he was co-chair of its gaming practice and was focused on corporate and securities matters, including mergers and acquisitions, securities offerings, and financing transactions.
Connect …
- A large amount of ready cash with
- A company that has grown almost exclusively through acquisitions, and
- A major lender that wants Amaya share warrants at nearly double the current share price
… and it’s not hard for a picture of a transformative acquisition to emerge by May 16 based completely on publicly-available information.
What’s known about FINRA’s Amaya investigation
According to a report in The Globe and Mail on February 10, the Financial Industry Regulatory Authority (FINRA) is interested in what relationship, if any, existed between Amayaand some 300 investors who booked handsome profits following Amaya’s blockbuster acquisitionof PokerStars last summer.
FINRA is not a government agency, but a private self-regulatory body established by the U.S. financial industry.
The Globe and Mail reported that FINRA contacted Amaya in December 2013 with a request for information regarding the company’s connection to a number of investors who took a position in Amaya in advance of the acquisition.
FINRA did not comment for the Globe and Mail story.
The Globe and Mail did not appear to have directly reviewed the request, instead referring to sources who had “read the document” and “people familiar with the request.”
It’s unclear who provided the information to the Globe and Mail and why they chose this point in time – some two months after the request was made – to move the story forward.
The inquiry by FINRA is not directly connected to or coordinated with an ongoing investigation being conducted by Quebec’s AMF, although both are broadly centered around the acquisition of PokerStars.
What’s known about the AMF investigation
The investigation timeline
- December 10 (time unknown): Agents from the AMF, accompanied by the RCMP, visit the offices of Amaya, Canaccord Genuity and Manulife Financial. All three offices are searched. AMF officials reportedly requested and received a list of trading activity from Canaccord.
- December 11, 7:13 PM EST: Forbes publishes the first known report of the incident. This report became the primary source for most subsequent reporting.
- December 11, 10:47 EST: Amaya releases a statement on the Forbes report.
- February 11: The Globe and Mail reports that the AMF is “examining the trading activities of the Manulife brokers and their family members at the branch in Dorval, which is west of Montreal.”
- February 17: The Globe and Mail reports that an alert from Manulife to the AMF about trading in Amaya by a group of Manulife brokers is “believed to have prompted the AMF” to launch the investigation.
- March 6: The Globe and Mail reports that the warrant served to Amaya by the AMF in December “included a request for records of communications and business dealings with the company’s long-time adviser Yoel Altman,” citing “people familiar with the investigation” and noting that “[t]here has been no indication from FINRA or the AMF of any wrongdoing by Mr. Altman or the other investors.”
Public statements from Amaya and other relevant parties
Amaya statements
Statement released following the Forbes report
“To provide clarification on a media report, Amaya Inc. (the “Corporation”) (TSX: AYA) confirmed that the Corporation and its officers are cooperating with the Autorité des marchés financiers, the securities regulatory authority in the Province of Quebec (the “AMF”), in an investigation with regards to trading activities in Amaya securities surrounding the Corporation’s acquisition of Oldford Group in 2014. (Dec 11)
To the Corporation’s knowledge, this does not involve any allegations of wrongdoing by the Corporation. Amaya will continue to cooperate, if and as requested, consistent with our practice to always cooperate with regulatory authorities.
The Corporation will continue to monitor the investigation if and as it proceeds. The investigation has had no impact on Amaya’s business operations, employees or companies.” (Dec 11)
Original statement to Forbes from Amaya spokesperson Eric Hollreiser
“Amaya is cooperating in an investigation by the Autorité des Marchés financiers (AMF), the securities regulatory authority in the Province of Quebec. It is not appropriate for us to provide any further details at this time.” (Dec 11)
Comments from CEO David Baazov
“I would say that the investigation for us is something that we anticipated given that there was a historical stock run-up in advance. I think the AMF is looking into something that they should be looking into and looking into what has led to that stock run-up,” Baazov said.
“We have no evidence to believe that there’s any wrongdoing by any officer, director, or employees and we’re cooperating with the investigation.” (BNN, Jan 17)
Intertain statement
“Intertain Group Limited (“IT-T”, “Intertain” or the “Company”) feels it is necessary to comment on the trading activity in its common shares today. The Company became aware through news reports of the investigation by the Autorité des marchés financiers (AMF), Quebec’s securities regulatory authority, regarding certain trading activities of Amaya Gaming Group Inc. Intertain stated today that it is not aware of any connections to Intertain of the investigation and it has not been contacted by any security regulatory or law enforcement authority.” (Dec 12)
Statement from Manulife Financial
“We are aware of the actions taken yesterday by the AMF and RCMP and are fully cooperating with this investigation.” (Forbes, Dec 11).
Statement from Canaccord
“We’re cooperating fully with the routine request for information.” – Canaccord spokesperson Scott Davidson (Star, Dec 12).
“I can assure you that Canaccord Genuity is not the subject of this investigation, nor is any member of our capital markets group […] This is strictly a request for information related to individual trades in our client accounts.” – Chief Executive Officer Paul Reynolds (Montreal Gazette, Dec 15).
Statement from the AMF
“Yesterday’s operation is part of a AMF investigation on that company. I can’t go further for the moment.” – AMF spokesperson Sylvain Théberge (Forbes, Dec 11).
“This search was part of a wider investigation on which we have no further comment,” – AMF spokesperson Sylvain Théberge (La Presse, Dec 12).
When is a raid not a raid?
The Forbes story (and Forbes’ subsequent follow up) both originally referred to the action as a “raid.”
But that description was subsequently removed from both stories, replaced by “showed up” and “investigation.”
That change, along with the gaps between the event and the first report and that report and Amaya’s statement, all suggest a far less aggressive action on the part of authorities than “raid” might bring to mind for the typical reader.
A source inside Canaccord characterized the action as “fairly routine” and a part of “almost every major transaction” to BNN reporter Amber Kanwar.
As for the presence of the RCMP, the agency told the Toronto Star that “it simply provided security for the AMF, rejecting the characterization of its involvement as a raid.”
Immediate impact on stock prices
Amaya stock plummeted on news. On the day following the news (Dec 13), Amaya openeddown sharply, followed by a quick – but only partial – recovery. As of close on Dec 13, the stock was off some 18% from the day’s opening price.
Intertain shares tumbled in tandem. Intertain was not named in connection with the investigation.
But the company – part-owned by Amaya – saw its stock price shrink over 25%, apparently in reaction to the news. Manulife also holds a significant position in Intertain.
Intertain subsequently released a statement saying in part that “it is not aware of any connections to Intertain of the investigation and it has not been contacted by any security regulatory or law enforcement authority.”
Canaccord, Manulife took smaller dips. Canaccord shaved off nearly 16% on the news, while Manulife dipped down just under 3%.
Patrick Horan of Agilith Capital told Advisor.ca that “I don’t think there’s a lot at risk for either company,” reasoning that a few individuals within the companies will be the ultimate targets of investigators.
Connections between the companies
How are Amaya and Canaccord connected? Canaccord played a number of roles in Amaya’s purchase of PokerStars.
How are Amaya and Manulife connected? As of Sept 30, 2014, Manulife owned a ~.6% stake in Amaya.
Both Manulife and Amaya hold material positions in Intertain.
How are Manulife and Canaccord connected? William J Eeuwes, Senior Vice President and Global Head, Private Equity at Manulife, is on the Board of Directors at Canaccord.
Tracks And California Online Poker: A Conflict With No Compromise?
Tracks And California Online Poker: A Conflict With No Compromise?
The Role Of Race Tracks In California Online Poker: A Conflict Without A Compromise?
A coalition of politically powerful American Indian tribes is taking a hard line against iPoker legislation in California that would license racing associations, wary it would constitute an erosion of the tribes’ constitutionally guaranteed exclusivity to engage in casino gambling.
Seven tribes led by the Pechanga Band of Luiseño Indians of Temecula are standing firm against any online poker bill that would license tracks, contending publicly that it would violate voter-approved public policy against expanded gambling in California.
But on a private, esoteric level, Indian leaders are concerned about the long-term sustainability of tribal gambling, which in California and elsewhere is used to fund government programs.
They view any potential erosion of the constitutionally guaranteed exclusivity tribes have to engage in casino gambling as a threat to tribal governance and self-determination.
It’s an issue not confronted by state officials and commercial stakeholders in the iPoker debate.
For many tribes, caution is the watchword
“Tribes should be careful not to sell out to corporate interests,” Pechanga Chairman Mark Macarro said. “They need to evaluate things in regard to what is best for their tribe and, at the same time, what is best for Indian country.
“Does the proposal sell out principles that to tribes are important? There are certain things we should look out for. It can’t just be about the deal. Certain things shouldn’t be negotiated.”
Macarro’s sentiments are apparently shared by six other tribes in the coalition:
- Agua Caliente Band of Cahuilla Indians in Palm Springs
- Barona Band of Mission Indians in Lakeside
- Lytton Band of Pomo Indians near San Francisco
- Sycuan Band of the Kumeyaay Nation in San Diego
- Viejas Band of Kumeyaay Indians of Alpine
- Yocha Dehe Wintun Nation near Sacramento
They do not see card room involvement in online poker as a threat to tribal casino exclusivity. The California card room industry dates back a century, long before compacted tribal gambling.
Split on tracks fundamentally threatens online poker efforts
Consensus among tribes is considered crucial to getting iPoker legalized in California. And the depth of the concern tribes have on the tracks may very well spell defeat for an online poker bill that will require a 2/3rds vote of the legislature.
“No iPoker in California is the clearly preferable option” to legislation licensing tracks, Agua Caliente Chairman Jeff Grubbe said.
Pechanga counsel Steve Bodmer issued a similar warning at last week’s iGaming Legislative Symposium in Sacramento.
“If you’re prioritizing … racetracks being involved is much more problematic for my client as well as numerous other tribes we work with,” Bodmer said. “This is a big issue because it’s an unnecessary expansion of gaming in California.
“Are we making a principled decision or are we making a business decision?”
The Pechanga coalition has the political clout to block iPoker legislation.
“Without Pechanga, there will be no bill,” a state official who requested anonymity toldPechanga.net.
The view from the other side
One should be careful not to suggest other tribal leaders in partnership with online vendors and anxious to launch poker websites are any less concerned with the future sustainability of their indigenous communities.
Several tribes see the Internet as an important and urgent step in the evolution of tribal gambling. And many tribes view extending licenses to the thoroughbred racing industry as a necessary political step in getting online poker out of the California legislature.
No tribal leader cares more about the well-being of his citizens than Bo Mazzetti, chairman of theRincon Band of Luiseño Indians, partners with Caesars Entertainment.
The same can be said of Robert Martin and Lynn Valbuena, leaders of the Morongo and San Manuel bands of mission Indians, who are partners with Amaya/PokerStars.
Mazzetti, Martin, Valbuena and others do not believe licensing tracks as a threat to the future prosperity of their communities.
“There’s no question the race tracks have to be eligible for licensing,” Mazzetti said. “That’s from the governor’s office. It’s going to be in there or there’s no bill.”
And Martin warns it is not likely all tribes would reach consensus on bill language.
“All of the tribes are not going to get together,” Martin said. “It just is not going to happen.”
Where it goes from here
There are four iPoker bills pending in the state Legislature.
Assemblyman Mike Gatto’s AB9 limits licenses to tribes and card rooms.
Assemblyman Reginald Jones-Sawyer’s AB167 extends license eligibility to the tracks.
Identical “shell” bills sponsored by Assemblyman Adam Gray and Senator Isadore Hall, chairmen of Government Organization committees through which a bill must pass, do not address license eligibility.
Proponents are right to point out that online poker is a state asset and a commercial venture to be taxed and regulated by the state. It is not gambling under the Indian Gaming Regulatory Act.
But if an online poker bill comes out of the legislative cycle which ends in 2016, lawmakers will have to convince tribal leaders the future sustainability of their communities will not be sacrificed to the cause.
That may not be easy.
Image credit: Cheryl Ann Quigley / Shutterstock.com.
Monday, March 9, 2015
Wednesday, January 14, 2015
Caesars Largest Unit to File Own Chapter 11 Bankruptcy - WSJ
Caesars Largest Unit to File Own Chapter 11 Bankruptcy - WSJ
Caesars Entertainment Corp. ’s largest unit is preparing to file for bankruptcy protection as soon as Thursday, the final gambit of a yearslong attempt to salvage a soured buyout.
Caesars Entertainment Operating Co.’s Chapter 11 filing would launch the final stage ofApollo Global Management LLC’s effort to save some of its $1.7 billion investment in the company, which it took private in 2008 with fellow buyout firm TPG.
A Chapter 11 petition would follow months of contentious negotiations with creditors, a who’s who of Wall Street investors. The unit’s collection of casinos and hotels, including much of the Las Vegas Strip’s iconic Caesars Palace, is expected to operate normally as it works to persuade a judge to approve a restructuring plan that would transform it into a real-estate investment trust.
Eric Seiler, an attorney for the gambling company, told a Delaware corporate law judge Tuesday that Caesars Entertainment Operating Co. would file for bankruptcy “on or about” Thursday. Another person close to the company said it’s possible the filing could come as late as Tuesday, Jan. 20. Mr. Seiler’s comments came after a group of creditors sought Monday to force the unit into bankruptcy through an involuntary Chapter 11 petition. It isn’t clear where the unit will file bankruptcy papers.
But in an unusual move later Tuesday, Appaloosa Management, Tennenbaum Capital Partners LLC and Oaktree Capital Management asked the Delaware bankruptcy court to prevent the unit from filing for Chapter 11 elsewhere while the involuntary petition is pending there.
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The restructuring is likely to test how far an owner can go to protect its own interest in bankruptcy. In recent years, Apollo has engineered a series of aggressive financial moves that have positioned the buyout firm to keep a significant stake in the gambling empire even though many creditors aren’t in line for a full repayment.
Some creditors have already challenged those transactions in court, an indication that Apollo may yet be in for a fight despite reaching a restructuring deal with most of the unit’s senior bondholders.
Bankruptcy isn’t the outcome Apollo and TPG had in mind in late 2006 when they teamed up to buy the casino giant, then known as Harrah’s Entertainment Inc. That year, the Las Vegas Strip and Atlantic City—major hubs for the casino operator—shattered prior gambling revenue records.
“Harrah’s has an excellent brand name, strong cash flows, an impressive portfolio of properties, a very talented management team, and highly skilled employees,” Apollo co-founder and Chief Executive Leon Black said in announcing the deal.
But the world changed by the time the buyout closed in January 2008. Consumers began cutting back on spending as the U.S. financial crisis took hold, and the company’s $22 billion post-buyout debt load quickly became a bigger burden than its buyers had anticipated.
Caesars also encountered another problem: Its efforts to secure a gambling license in Macau failed. Over the past decade, the Chinese territory has become the world’s biggest gambling market, with seven times the revenue of the Las Vegas Strip. Though the financial crisis took a toll on rivals MGM Resorts International, Wynn Resorts Ltd. and Las Vegas Sands Corp., revenue from Macau operations has revived their balance sheets.
Meanwhile, Caesars’ debt has limited any expansion to modest projects unlikely to contribute much to its bottom line. And one place where Caesars had been dominant—Atlantic City—went into freefall last year, forcing a handful of casinos to close, including Caesars’ Showboat.
Though Caesars remains one of the biggest names in gambling, its casino operations have taken a backseat to its financial woes on quarterly earnings calls. An analyst joked about the situation on a March 2014 call when he requested to ask an operational question “because you guys do run casinos.” Chief Executive Gary Loveman replied: “It’s flattering that you noticed that.”
The parent company has posted losses for each of the last four years, and its total liabilities have climbed to $28.2 billion.
Most of the debt stemming from the buyout is concentrated in Caesars Entertainment Operating Co., the unit expected to file for Chapter 11 protection. In recent years, its owners transferred properties, such as Caesars Palace’s upscale Octavius Tower, to other entities controlled by the parent company.
Some creditors have said these transfers moved valuable assets out of their reach. This past November, a trustee representing senior bondholders filed a lawsuit in Delaware’s Court of Chancery alleging that the assets transferred out of the unit were worth at least $3.6 billion more than the unit received for them.
Caesars and Apollo have defended the moves. Apollo defends its companies “using all the tools available to us,” Apollo spokesman Charles V. Zehren said earlier this month.
Apollo’s maneuvering led to sometimes bitter negotiations with some of the world’s most experienced distressed-debt investors, including Blackstone Group LP’s GSO Capital Partners, Elliott Management Corp., Oaktree and Appaloosa.
Their disputes occasionally spilled into public view. In the November lawsuit, the trustee for the senior bondholders called the Caesars transfers “a case of unimaginably brazen corporate looting.”
Though the unit’s senior lenders still haven’t agreed to back the restructuring, Caesars managed to win the support of its senior bondholders. Senior creditors are slated to get an ownership stake in the new REIT created in the restructuring, along with a mixture of cash and new debt.
Junior bondholders, meanwhile, are slated to recover far less than the senior creditors. A group of these creditors sent a strong signal of their displeasure with the deal earlier in the week when they asked a judge to force the unit into bankruptcy through an involuntary Chapter 11 petition.
On Tuesday, Mr. Seiler, a lawyer for Caesars with Friedman Kaplan Seiler & Adelman LLP, said the involuntary petition wouldn’t set the company’s agenda.
A Caesars Entertainment Operating Co. filing would stand out amid a slow period for mega bankruptcies, during which ultralow interest rates have enabled even the riskiest companies to borrow. It would be the largest bankruptcy since Energy Future Holdings Corp., another boom-era buyout formerly known as TXU, sought Chapter 11 protection last April.
The filing comes at the tail end of a shakeout among the multibillion-dollar buyouts that preceded the financial crisis. Some, including silicone and quartz producer Momentive Performance Materials Inc. and textbook publisher Cengage Learning Inc., ended up in bankruptcy court. Others, like real-estate brokerage owner Realogy Holdings Corp. and hotel giant Hilton Worldwide Holdings Inc., weathered the downturn and generated profits for their owners.
If the restructuring goes as planned for Caesars’s owners, Apollo and TPG will keep a stake in the parent company, allowing them to share in the upside if its fortunes improve.
Corrections & Amplifications
An analyst joked during a March 2014 earnings call about the way questions related to Caesars Entertainment’s casino operations had taken a backseat to those about its financial woes. An earlier version of this article reported incorrectly that the call occurred in November.
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