Analysts believe Amaya's continuing legal battles in North America could prove problematic for William Hill should the two complete their proposed merger.
It was announced yesterday that the UK giant and the Canada-based owner of Pokerstars have been in discussions over creating a combined entity that would have a market capitalisation of about £6 million ($7.4 million / €6.6 million).
Reaction from investors has been lukewarm, with Hills' 305p share price retreating after an initial spike and actually down on the average figure of 310p from last week.
It is thought that while the two companies can offer synergy savings and scale, investors will be concerned by the $870 million fine imposed on Amaya last year for alleged violations of Kentucky’s anti-gambling laws. Amaya is appealing against the fine and said it “vigorously disputes any liability”.
David Baazov, Amaya’s founder and former chief executive, is being investigated by Quebec’s securities regulator for alleged insider trading in relation to the purchase of PokerStars and Full Tilt.
Analysts at Numis said: “This insider trading investigation surrounding Mr Baazov should not impact Amaya. However, the contested Kentucky damages ruling against Amaya could be material. We also think the poker market is mature and consequently has the lowest opportunity for growth.”
There are also concerns about Amaya’s high level of debt, about £1.75 billion, giving the combined group a debt of about 3.5 times its earnings potentially.
Jason Holden, an analyst at Liberum, said: “On balance we see elements of commercial logic to the deal and a value opportunity, which, once scepticism abates, could see short-term share price upside. Fundamentally, however, both boards are going to have to work very hard to convince mainstream UK investors as to the merits.”
However, another market source said that the deal made sense. “Everyone knows the industry is consolidating and, while scale isn’t the be-all and end-all, it is advantageous,” the source said.
“The merger would give the business a good mix between bricks-and-mortar stores and digital business and a better geographic spread. It also gives a better balance between the sports, poker and casino gaming businesses.”
Related articles: William Hill and Amaya confirm merger talks