August 03, 2010

888 on radar as takeover fever grips gaming sector

Online gaming firm 888 said it had been contacted by rivals looking for takeover opportunities in the wake of last week's tie-up between Austria's bwin and PartyGaming.

The merger between bwin and PartyGaming will create the world's biggest Internet gambling firm, worth $4 billion at current share prices, and puts pressure on other companies in the sector to strike deals or risk losing out as online gambling laws are relaxed across the world.

"This puts us in a position in which we are one of the best assets in the field -- we got a few phone calls immediately from various people. Everybody in the industry is looking and saying 'who is the best one to merge with if we need to?'," Chief Executive Gigi Levy said in an interview with Reuters.

"Party and bwin took almost a year to close the deal so we don't see anything happening imminently but there's definitely expressions of interest," he said.

KBC Peel Hunt analyst Nick Bartram said 888 must strike a deal in order to fully realise value in its business, especially in light of its weak trading performance in recent quarters.

"The pressure is now on for others to pursue consolidation or risk being left further behind. For 888 consolidation looks imperative and, given the bottom line performance, the group could be pursuing this from a sole position of weakness," he said.

888, which runs online casino, bingo and poker websites, said on Tuesday it made second quarter operating income of $61 million, unchanged on the previous year, after growth in bingo and emerging markets offset weak trading in its poker division.

Poker has been hit by competition from websites continuing to take bets from U.S.-based gamblers illegally.

888 said average daily revenues in July were down 6 percent on the previous quarter, with summer holidays and the soccer World Cup providing alternative attractions for gamblers.

In May, 888 warned full-year earnings would be significantly lower than market expectations.

Shares in 888, which have lost over half their value since the start of the year, were trading down 1.5 percent at 49.25 pence at 0915 GMT.

888 also said it had formed a partnership with Microgame to provide online casino products to the Italian market.

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