Amaya Inc.: Baazov Buzzes Off, Leaving Stock in the Lurch

Quelle surprise.

For those of you who don’t speak French, it means “what a surprise” in English.

David Baazov has taken his US$4.1 billion offer for Amaya Inc. (TSX:AYA)(NASDAQ:AYA) off the table—a result that shouldn’t come as a shock to anyone who’s been around legal gambling for more than a hand or two at the blackjack table.

US$4.1 billion is a lot of money for anyone, even billionaires. You don’t pull off something like this without having your ducks in a row; Baazov certainly did not.

SpringOwl Asset Management, owners of more than one million of Amaya’s 145 million shares outstanding, had a couple of problems with the offer. First, it feels Amaya stock is worth more than $24. Personally, I don’t agree, but then I don’t run a hedge fund. The second problem, and in my opinion the bigger issue, is the lack of transparency about whose money was floating Mr. Baazov’s grand game of Monopoly.

Apparently, nobody.

As soon as the head of Dubai investment firm KBC Aldini accused the Baazov group of using his firm’s name without consent in a November 22 interview with the Globe and Mail, investors should have seen the red flags and known a deal was never going to happen—at least not with David Baazov leading the charge.

Since that announcement, Amaya’s stock price has bounced around between $18 and $20 as investors tried to figure out if Baazov was for real. Well, we now know he wasn’t. That leaves investors to consider the future value of Amaya’s stock price without any catalyst to push it higher. contributor Jacob Donnelly continues to be bullish about Amaya, although his latest article was before Baazov officially withdrew his offer for the company.

One of the reasons Donnelly is big on Amaya is the growth of the industry over the past 13 years. In 2003, online gambling had $9.5 billion in gross wins; in 2015, it had grown to $40.3 billion, or about 10% of the total gambling revenue—a percentage that is bound to increase as more people do more things on their phones.

That’s not a bad theory. However, there’s one little problem with this line of thinking.

The same rationale is being used for online and mobile retail. Only, with retail, it’s possible to grow the entire pie. In gambling, you have a fixed number of people who are gamblers with very little hope of converting non-gamblers, online or in person.

That doesn’t necessarily mean Amaya can’t continue to take gambling market share, but it’s at the expense of people like Wynn Resorts and Las Vegas Sands, who will likely change their tune about online gambling if Amaya continues to cut into their business.

It’s a big reason why William Hill called off negotiations with Amaya in October. People playing online poker aren’t the same people who are placing bets on sports. A merger of the two would simply have taken the focus off sports betting and on to online poker, and that just didn’t make sense for William Hill, whose growth prospects are arguably greater.

Unless you really love online gaming and want to support its future by investing in Amaya, there are so many better options whether you consider the company a technology stock or a services stock.

May the best bet win.

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Fool contributor Will Ashworth has no position in any stocks mentioned.

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