PokerStars Retaliates on ‘Inaccuracies’ in Objection Letter By William Hill Shareholder That Cut Short Merger Talks

In aftermath of talks being called off for a merger between Amaya and William Hill, the company’s flagship site, PokerStars has retaliated on the “inaccuracies” in a letter by the UK bookmaker’s shareholder, which was the cause for the deal being broken before it was even finalized.

Parvus Asset Management, that owns 14.3% in William Hill had come out strongly over the proposed deal in a written letter. Eric Hollreiser, VP, Corporate Communications, Amaya and PokerStars has published an equally strong post on the site’s blog, stating that “the company wishes to take this opportunity to clarify certain inaccuracies contained in an open letter from a William Hill shareholder to William Hill’s board of directors.”

Potential Poker Market

Starting off on the point raised by Parvus on poker being a declining market, Hollreiser has pointed out that PokerStars enjoys the largest share of player traffic with 71% as per Q2 reports and has 10 times the revenues of its closest competitor.

In reference to the market, he says, “It is simply not true to say that poker is a mature or declining market based upon certain public data which under-reports the size and growth of the poker market.”

Hollreiser has given explanations for his arguments and declares that key poker metrics at the PokerStars platform predict a healthy growth ahead in constant currency terms, as well a strong future potential, with the US moving towards positive legislation. He also declared that the major revenue at PokerStars came from tournaments including MTTs, Sit & Gos, as well as Spin & Go formats.

Cross-Selling Of Products

Reacting to the letter’s doubts of “cross-selling” of products, Hollreiser says that it was not at all difficult and in fact, “Amaya has seen success in cross-selling its online casino and sports betting products while increasing the lifetime values of cross-sold customers. Through cross-sell alone, Amaya estimates that its online casino currently has one of the largest casino player bases among its competitors.”

He emphasized that, “We have never said and do not believe that there was a backlash against any cross-sell push.”

According to an independently-conducted survey of Amaya, approximately 35% of poker players play other online casino products at the site or at competitors and approximately 40% of poker players play online sports at PokerStars or with competitors.

Hollreiser pointed out “Amaya’s strength in poker has enabled us to become one of the largest casino sites in the world in terms of active customers in less than two years with no external marketing.”

VIP & Loyalty Changes

Without getting specific, Hollreiser addressed the negative criticism it had received for implementing several changes to its VIP and Loyalty programs and said, “The changes made to the PokerStars loyalty and VIP program have thus far had a net positive impact on our business and the overall poker environment.”

Indirectly pointing towards the company’s stance of favoring recreational players, he subtly stated, “The changes have actively dis-incentivized some forms of high-volume play that does not positively contribute to the poker environment and does not contribute to our earnings.”

Capital Expenditure & One-Time Expenses

Diving into the deep-end of business and financial statistics, Hollreiser raised the point of Amaya having a cash conversion of EBITDA of 39%, as stated in the letter as “factually incorrect” and says, “We believe calculations of free cash flow should exclude the impact of changes in player balances given that these are funds held in segregated accounts on behalf of players. Actual Unlevered Free Cash Flow cash conversion from Adjusted EBITA for the period in question was approximately 69% per Amaya’s second quarter conference call webcast presentation.”

Defending the company’s capital expenditure of 2.08 times depreciation in H1 2016, Hollreiser clarified that “This is primarily because we are continuing to develop and build our casino product offering and our sportsbook product offering remains in investment mode. Additionally, this includes investments in our operations in New Jersey to support our regulated business in that state.”

Talking about the company’s growth the past two years, Hollreiser has remarked, “Since the Rational Group Acquisition in August 2014, Amaya has undergone transformational change with various one-time costs, including, but not exhaustively, those relating to the sale of two businesses in 2015, acquisition of Rational Group, migration of Full Tilt to the PokerStars platform, closing of two offices and certain associated restructuring costs, and legal and advisory expenses around the AMF investigation and strategic alternatives processes.”

Hollreiser ends the post stating that all “Amaya’s public filings, releases and other disclosure can be found at the Amaya corporate website, as well as on SEDAR at www.sedar.com and Edgar at www.sec.gov.”

In early October, William Hill, much smaller than Amaya had entered into talks with the Canadian giant for a reverse takeover, but after objections from several quarters withdrew from the discussions. The deal would give William Hill access to the large client field held by PokerStars, while the latter would benefit by getting its in-the-pipeline sports betting product fast-tracked.

William Hill, UK’s largest book maker already serves as a sportsbook operator for numerous Las Vegas casinos.