December 14, 2009

Merger on cards for PartyGaming and Bwin

Less than a month ago, at the eGaming Review Awards 2009, the online gambling industry’s annual prize-giving, Bwin Interactive Entertainment, the Austrian company, beat off competition from PartyGaming to pick up the award for Operator of the Year. However, by the time next year’s awards come around, the rivalry may have ended if talks over a £2 billion-plus merger are successful.

The companies, both quoted, are expected to face pressure from the Takeover Panel this morning to clarify their position after speculation, first reported in The Times on Thursday, that they are holding formal talks over a merger.

PartyGaming, based in Gibraltar but listed in London, took a small step into sports betting three years ago with the €102 million (£91.6 million) purchase of Gamebookers, but in recent months it has been declaring its determination to seek a bigger target in order to become a leading sportsbook operator and complement its traditional strengths in online poker, casino and, more recently, bingo.

The prospects for a deal have been enhanced by the settlement agreed with the US Department of Justice (DoJ) in April that has effectively closed the book on the possibility that PartyGaming could face prosecution over its activities in America before it withdrew in 2006 when President Bush introduced a formal ban on internet gambling.

The group paid $105 million (£65 million) to settle the case with the DoJ, and since then has already made two acquisitions. In July, it announced the takeover of Cashcade, the owner of Foxy Bingo, for up to £96 million, and then last month it completed the acquisition of the majority of WPT Enterprises, the owner of the World Poker Tour, for a minimum of $15.3 million.

Bwin, too, has outlined plans to participate in industry consolidation. In 2007 it held abortive talks with Sportingbet, its London-listed sports betting rival. Then in September this year, the Vienna-listed group announced the acquisition of Gioco Digitale, the Italian poker room, in a cash-and-shares deal worth €115 million.

Like PartyGaming, Bwin has suffered regulatory problems in recent years, although in its case the country in which it has fallen foul of the law is France, rather than America. At the end of 2006, the group’s joint chief executives were arrested and then bailed after signing a football sponsorship deal with AS Monaco. In recent months, France has relaxed its protectionist gaming laws and Bwin is hoping to be a beneficiary.

Jim Ryan, PartyGaming chief executive, is hoping that the Obama Administration will be receptive to similar moves to remove the ban in America. In the wake of the DoJ settlement, he declared: “We’re hopeful that, in the fullness of time, the new Administration will take steps to regulate it.”

US Congress made it illegal to make payments to online gambling sites in October 2006, prompting quoted operators, including PartyGaming, 888 and Sportingbet, to close their US operations and start negotiations with the DoJ and the US Attorney’s Office for the Southern District of New York.

In its heyday PartyGaming was the world’s biggest online poker company and in the blue-chip FTSE 100. Its colourful founders pocketed billions of pounds in its controversial 2005 flotation and subsequent share sales, but its shares collapsed after the US ban.

One of its biggest issues today is vying with rivals, including PokerStars and Full Tilt, which continue to defy the law and still take bets from American punters. The greater “liquidity” those companies attract from US players also makes them more attractive to European players.

A source close to the talks cautioned that they were still at a “very early stage”, although he admitted the companies knew each other “extremely well”. He said that precise terms, including the make-up of a combined board, had yet to be agreed, although Mr Ryan is tipped to take the chief executive’s role in an enlarged group.

PartyGaming has a market value of about £1 billion, while Bwin is valued at about £1.2 billion. The rumour last night was of a “merger of equals” although analysts said that PartyGaming had the capacity to fund an outright acquisition in cash and shares.

A deal could give PartyGaming a strong hand as it seeks to go one better and pick up the top prize at next year’s EGR Awards.

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