LONDON A leading investor in British betting company William Hill (WMH.L), Parvus Asset Management, said it would oppose any reverse takeover of Canadian firm Amaya (AYA.TO), given its "limited strategic logic".
Parvus said a deal would also "destroy shareholder value" in an open letter to the board on Thursday, and it wanted the firm to consider all alternative options for maximizing shareholder value, including a sale of the company.
The firms had announced talks on a tie-up on Oct. 7, just two months after William Hill rejected a revised takeover approach from online rival 888 (888.L) and casinos and bingo halls operator Rank Group (RNK.L).
William Hill said it was still assessing a tie-up.
"It shouldn't take more than five minutes of the board's time to realize this deal doesn't pass the smell test," Mads Eg Gensmann, co-founder of 4.3 billion euro Parvus told Reuters.
Gensmann said he had no preferred strategic option, but he wanted the board to evaluate each on its merits, adding that their judgment in pursuing Amaya had been "clearly lacking".
In response, a spokesman for William Hill said given the strategic fit, diversification and potential synergies of an Amaya deal, it had a responsibility to fully assess it.
"However it is premature for us to draw conclusions whilst this work is ongoing. The Board would not come forward with a transaction unless it was satisfied that it was in the interests of all shareholders."
Parvus said it was the largest investor in William Hill, with a 370 million pound ($460.10 million) economic interest covering 14.3 percent of its outstanding shares using a derivatives called contracts-for-difference, which it would convert to shares if an Amaya deal was put to a vote.
After first buying into the firm in March 2014, the letter said Parvus had been supportive of the owners "despite the many operational missteps and weak share price performance", which Gensmann said included the implementation of its Trafalgar platform, which had left it a "market share loser online".
On the proposed deal with Amaya, Parvus said the Canadian firm's core business of online poker was the least-attractive segment within online gambling and a tie-up would weaken William Hill's strategic position in the long run.
Parvus also said the potential deal's financial structure favored Amaya shareholders at the expense of William Hill's, despite the latter's far superior cash-flow generation.
"Effectively, you're buying an overvalued asset using an undervalued currency," he said, citing moves in the value of the Canadian dollar and sterling since the start of the year.
Gensmann said the arguments used against starting talks with Rank and 888, which included the complexity of any potential tie-up, and those used for a deal with Amaya - a complex, cross-border "transformational deal" - displayed "blatant double standards".
"We strongly encourage that the board and management stops wasting valuable time and shareholder resources pursuing this value-destroying deal," Parvus wrote.
(Reporting by Simon Jessop; editing by Pamela Barbaglia and Alexandra Hudson)