Party Gaming and Empire Online confirm sale talks

28.12.2006

Both Empire Online and Party Gaming spokesmen today (Thursday) confirmed yesterday's media reports (see previous InfoPowa bulletins) that a sale of the former was being discussed.

Discussions on a sale of Empire's gaming business and assets are at an "advanced'' stage, Empire said today in a statement reported by both Reuters and Bloombergs news services.

PartyGaming, which disclosed its involvement in a separate statement, was Tortola, British Virgin Islands-based Empire's main customer before the companies became legal adversaries in a case that was later settled. Empire was one of four "skins,'' or marketing partners, that fed players to poker tables at the PartyPoker.com Web site. PartyGaming agreed in February this year to pay $250 million to settle a lawsuit that Empire filed after its players were barred from sharing tables on an improved poker platform at Party Poker. Party bought two of the other skins, and the third left its (old) platform.

Internet gambling operators are scrambling to replace lost sales following the October enactment of the U.S. Unlawful Internet Gambling Enforcement Act, which has separated companies including PartyGaming and Empire from their main revenue sources. Consolidation in the industry is inevitable, say analysts.

"This is the aftermath of what happened in the U.S.,'' Alex Kyriakidis, a managing partner at Deloitte & Touche in London, said of today's announcement.

Empire, the owner of Web gaming brands including Noble and Titan Poker and Club Dice, plans to use its substantial cash reserves to become an investment company if it sells its gambling business, company spokesmen confirmed. Empire's Internet casino generated revenues of $30.2 million in the first half of 2006, while its Internet poker site generated $8 million.

U.S. gamblers accounted for about 85 percent of sales in 2005 at PartyGaming and around 65 percent of Empire's revenue when the company said it would no longer accept wagers from Americans.

Earlier this year - three weeks before the United States banned Internet gambling financial transactions - a source close to Empire told Reuters the group was planning to invest its $250 million cash pile outside the online gambling industry, and it has been suggested that property development may be one new direction for the group.

"Shareholder approval would be required for a disposal of the company's trade and gaming related assets and in order to approve the company's investing strategy," an Empire Online spokesperson emphasised. "The proceeds of any disposal would be used together with the company's existing cash of approximately $250 million to invest opportunistically in both private and public businesses and across the small, mid and large-cap range of companies," he added.

Noam Lanir, Empire's founder and chief executive officer, owns a stake in the company of almost 33 percent, according to data compiled by Bloomberg. The holding is worth some GBP 41.7 million ($82 million) at the stock's current price, based on a percentage of the entire company's market value. Lanir bought 30 million shares on November 7 (see previous InfoPowa report).

The U.S. measures have spurred at least one other Internet gambling company to quite the industry. Shares in Australia-based Betcorp Ltd., which also generated most of its revenues from American gamblers, are no longer traded in London after the company sold its entire wagering business last month to the Bodog group, which operates from Costa Rica.

A PartyGaming spokesman vehemently denied Internet rumours circulating yesterday that the group was planning to re-enter the U.S. Internet gambling market.