Intertain committee opines Spruce Point negative report was "false and misleading"

The “independent” committee set up by Canadian online gambling operator Intertain last year to look into a negative broker report that sent its share price into a severe downward spiral (see previous reports) has perhaps predictably reached a conclusion that the report in question was both false and misleading.

In a presser released Monday, Intertain was critical of short-seller Spruce Point Capital Management, the company which published the offending report, and revealed that its committee had concluded:

* There was no basis for concern on the company’s acquisitions and the performances of its bingo and online casino businesses, which have continued to meet or exceed corporate management’s expectations;

* That there was no need for changes to the company’s already disclosed financial statements, which were the subject of Spruce Point criticism;

* That changes and improvements to address “inadequate documentation, approvals and record keeping in respect of certain payments previously made by Intertain that were recorded and fully expensed by it as transaction expenses in connection with its prior acquisitions” be implemented.

“Contrary to the claims of the [Spruce Point] short seller, each of the Jackpotjoy, Vera&John and Mandalay businesses performed well during 2015 and continue to meet, or exceed, management’s expectations,” the press release notes. “This is consistent with Intertain’s January 11, 2016 press release announcing increased total revenue, adjusted net income and adjusted net income per share guidance for 2015. Intertain’s only business unit that has been underperforming is InterCasino, which is no longer a significant component of Intertain’s consolidated results.

“Importantly, the Jackpotjoy brands, which represent Intertain’s most significant acquisition to date, continue to perform, on a consolidated basis, in line with the expectations of Intertain’s management at the time the acquisition was negotiated and completed. As set forth in Intertain’s December 22, 2015 press release, the principal criticisms levelled by the short seller regarding the Jackpotjoy brands, including in regards to their EBIT margins and their market leading position in the UK online Bingo-led market, were false and misleading.

“The Committee’s review revealed no basis for concern with respect to any of the Jackpotjoy, Vera&John or Mandalay acquisitions or the continued performance of those businesses.”

Our readers will recall that the special Intertain committee appointed to consider the Spruce Point allegations consisted of non-management Intertain directors, advised and assisted by independent external professional business service providers that included Deloitte.

The committee’s report appears to support what Spruce Point claimed were excessive bonus payments to two top company executives related to their efforts in finding new acquisitions for the company. The payments – around Cdn$17 million last year – have already triggered concern among company shareholders.

Initial market reaction to the committee’s review will have disappointed management…Intertain shares dipped a further 9.5 percent, sliding lower than the Cdn$7.98 cellar it reached in December. Investors will now be awaiting the company’s full year and fourth quarter results, which are due out in mid-March.

Monday’s press release did not give any indication on Intertain’s intentions toward Spruce Point regarding its damaging assessment.