Amaya Gaming Stock Surge Draws More Government Interest
Last July’s massive $4.9 billion acquisition by Amaya Gaming of PokerStars parent Oldford Group has returned to the news in recent days, with the United States’ Financial Industry Regulatory Authority Inc. (FINRA), now looking into the exceptional Amaya stock run-up that preceded last May’s first official declaration that a possible major acquisition was in the works.
Canada’s Globe & Mail was the first to publish the latest news, which has FINRA, a non-official “watchdog agency” that oversees that brokerages and financial exchanges, looking into the circumstances behind last May’s surge in Amaya’s stock price.
FINRA, according to the Globe and Mail, is looking into roughly 300 separate investors — largely financial brokers, hedge funds, and other corporate investors — who poured large sums of money into Amaya stock in the days and weeks before Amaya was finally forced to publicly acknowledge that a possible acquisition was in the works.
Following that acknowledgment, late last May, Amaya’s share price actually stabilized, then surged again when the PokerStars acquisition was finalized. The deal was finally announced on June 12th, but in the nearly two months before that, Amaya’s share price had already more than doubled, moving from less than $7 a share to more than $14. The 300 corporate investors being looked into by FINRA made the lion’s share of the stock purchases during those weeks.
The investigation by FINRA is separate from that being conducted by Canadian financial authorities into the same suspicious stock run-up. Last December, officials from the Autorité des Marchés Financiers (AMF) and the Royal Canadian Mounted Police (RCMP) conducted three separate raids seeking financial information regarding the stock transactions, targeting not only Amaya’s corporate offices, but also those of Canadian insurance company Manulife Financial and investment bank Canaccord Genuity.
Amaya itself doesn’t appear to be the primary target of either the Canadian or American investigations, and Amaya CEO David Baazov issued a statement to that effect soon after the December raids. Instead, Manulife and Canaccord Genuity seem to be the primary targets of the investigation, though both have also issued statements denying wrongdoing.
The massive packaging that was put together to allow Amaya to acquire the much larger Oldford Group necessitated getting many corporate investors involved. That complexity becomes part of the problem, since the nature of the deal itself meant that many investment groups knew it was in the works before it occurred. However, the extent to which that information was shared may well be unprecedented: The Globe & Mail report states that the 300-odd investors being investigated represent “the largest group of investors ever singled out for investigation by regulators for inquiries.”
Another aspect of the unprecedented stock run-up is the huge premium that was actually paid for the Amaya shares by the underwriters involved in helping package the deal. According to a report at Advisor.ca last December, in the news cycle involving the three raids:
Canaccord and the other underwriters agreed to buy Amaya shares in a private placement and sell them at market.
Amaya’s common share price was pegged at $20, and its preferred shares were $24. In the 30 trading days before the deal broke, Amaya’s volume-weighted average price was $9.59. In its briefing to shareholders, the company notes the agreed-upon common share purchase price was a 108.5% premium on that average. It was also a 66.4% premium over Amaya’s $12.02 closing price on June 11, the day before the deal was announced.
That report also quoted an anonymous report as saying the deal was unusual at the very least. “It’s more common in a bought-deal situation […] to see a discount to the market price, not a whopping premium,” said the unidentified source.
Canaccord Genuity served as one of the two lead advisors in the acquisition, along with Deutsche Bank. Those two firms, along with Cormark Securities and Desjardins Capital Markets, also served as the primary underwriters in the deal.
The situation continues to intrigue financial-industry analysts. Whether or not the ballooned price for Amaya shares is fair has, in light of the investigations, become secondary to exactly how that surge occurred. For Amaya itself, the company’s interests and future licensing possibilities (in the US in particular) are best served if investigators indeed eventually determine that the presumed insider-trading leaks came from one of the underwriting firms, and not from inside Amaya… as presently seems to be the case.