Online Poker Industry Turned on Its Head Following Sale of PokerStars
In the 16-year history of online poker, there are only a handful of events that have been significant enough that they are worthy enough of being written down in the annals of online poker history. That short-list has now grown by one after the Oldford Group (the parent company of PokerStars and the Rational Group) announced the sale of the company to the Amaya Gaming Group for the princely sum of $4.9 billion.
Without a doubt, the sale of PokerStars is on par with other history making moments such as the launch of Planet Poker on New Year’s Day 1998, UIGEA passage in 2006, April 15, 2011, (aka Black Friday), and the launch of Ultimate Poker on April 30, 2013.
It’s that big a deal.
Early speculation proves to be true
The first rumblings of this deal appeared on CalvinAyre.com in late May[i], but the site has a somewhat dubious track record with these types of prognostications, causing many industry types to dismiss the claims as idle speculation.
For instance, earlier this year CalvinAyre.com took a bit of hit in terms of reliability when the site posted an article claiming the DOJ was ready to cut a favorable deal that would allow Isai Scheinberg to settle his pending case. The article was removed the following day, leading to a few people chastising the site with a Stephen Colbert-style “wag of the finger.”
It should be noted, that following the announcement of the deal, it came to light that the deal had been in the works for some six months, so, CalvinAyre.com deserves a Stephen Colbert “tip of the cap” for being the only outlet that picked up on this trail, and for breaking the story.
After CalvinAyre.com lit the fuse following a sudden surge in Amaya Gaming stock that went from just over $7/share to over $10/share over the course of a single week, culminating with a 14 percent jump on Friday, May 23, smoke turned into fire as Amaya’s stock has continued its upward trend, and with every passing day the industry grew more and more certain that something (there was no consensus as to what was going to happen, but something was going to happen) was going to be announced soon.
On Thursday, June 12, Amaya’s stock was rising so fast (topping $14/share) that the Toronto Stock Exchange halted trades on the company, and sure enough Amaya and PokerStars released an official press release that evening confirming the sale.
The deal: What Amaya gets for $4.9 billion
The sale of PokerStars to Amaya required the issuance of the rarely seen 4,000 word press release[ii], which should be an immediate tip-off that this is a very big deal.
Technically the deal is still in progress, as PokerStars CEO Mark Scheinberg noted in an internal e-mail he sent to PokerStars employees[iii]:
“The sale is subject to regulatory approvals, which we expect to receive in the coming weeks. This means the transaction is expected to be completed no later than September 30, 2014.”
That being said, even with some t’s still needing to be crossed, for all intents and purposes, it is a done deal. Amaya Gaming CEO David Baazov expects the sale to be finalized on or around September 30, 2014, in the press release, and based on all reactions there is seemingly little chance that this deal will somehow fall apart.
According to its announcement, Amaya Gaming is set to receive the entire portfolio of the Oldford Group in exchange for its $4.9 billion payment, including but not limited to:
- Full Tilt Poker
- The company’s live poker tours including the European Poker Tour (EPT), Latin America Poker Tour (LAPT), UK Ireland Poker Tour (UKIPT), and the PokerStars Caribbean Adventure (PCA)
- PokerStars branded poker rooms at the Hippodrome in London, at the City of Dreams in Macau, and at the Casino Gran in Madrid
- PokerStars online and television content and programming
In order to facilitate the deal, Amaya Gaming (a company that had a valuation of around $175 million before the deal) had to raise quite a bit of outside capital, and in addition to a $2 billion first-term lien loan and an $800 million second-term lien loan, the company is releasing $1 billion in preferred shares and over $600 million in common shares.
Key Transaction Highlights from the Press Release
- The transaction will result in Amaya becoming the world’s largest publicly traded online gaming company. The online poker platforms PokerStars and Full Tilt Poker are collectively the world’s most popular and profitable online poker brands with more than 85 million registered players on desktop and mobile devices.
- For calendar year 2013, pro forma combined revenue, EBITDA and adjusted EBITDA1 of Amaya and Oldford Group were $1.3 billion, $474.8 million and $473.8 million, respectively. For 2014, the corporation is projecting pro forma adjusted EBITDA, assuming the transaction had been completed as of January 1, 2014, of between $600 and $640 million.
- The transaction combines complementary businesses with minimal overlap: Isle of Man-headquartered Rational Group’s B2C poker business including PokerStars, Full Tilt Poker, live poker tours and events, and online and TV poker programming; and Montreal-headquartered Amaya’s B2B interactive and physical casino and lottery gaming solutions.
- Under the terms of the transaction, Oldford Group shareholders led by Mark Scheinberg, founder and chief executive officer, will dispose of their shares to a wholly owned subsidiary of Amaya. Mr. Scheinberg and other principals of OIdford Group will resign from all positions with Oldford Group and its subsidiaries on completion of the transaction.
- 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.
- The boards of directors of both Amaya and Oldford Group unanimously approved the agreement.
- The transaction will be financed through a combination of cash on hand, new debt, a private placement of subscription receipts, a private placement of common shares and a private placement of non-voting convertible preferred shares.
- Affiliates of GSO Capital Partners LP (“GSO”), the credit division of The Blackstone Group (BX), have agreed to participate in the debt financing, to subscribe for $600 million in convertible preferred shares, and to purchase $55 million of common shares of the corporation with each common share priced at C$20 upon closing of t