Empire crumbles but is PartyGaming rise over?

[clevfan]

Empire crumbles but is PartyGaming rise over?

By : Adam Durchslag November 06, 2005
THE BUSINESS UK

ONLINE gambling grabbed headlines in the City of London last week.Two significant events took place: the Gibraltar-based gaming company 888, which owns such brands as Pacific Poker and Casino-on-Net, released better than expected figures. And Party*Gaming, its larger competitor, announced its intention to buy much smaller outfit Empire Online, worth £330m (E485m, $587m).

PartyGaming’s decision last month to ban Empire Online’s poker players from playing on the same tables as its 9m-plus customers was seen as a means to hit Empire’s share price and launch an offer for the company. PartyGaming vehemently denied this.

When Empire listed on Aim in June, it was valued at £517m. Since its third-quarter trading update on 10 October, its shares have nosedived 40%, reflecting slowing growth. On 18 October, Empire issued a profits warning, stating that as a result of PartyGaming’s decision, annual net profits would be 10% lower than City expectations.

PartyGaming’s initial approach to buy Empire Online may not even lead to an offer. The company is looking at the books at the moment. The approach has failed to raise Empire’s price, suggesting the market doesn’t expect a takeover.

Sports betting and online casino company Sportingbet’s chief executive, Nigel Payne, also denied in reports last week that the company would take another look at Empire Online. His company made a £700m offer for Empire back in September – significantly higher than Empire Online’s current market cap of £330m.

The question is whether Empire Online’s slightly larger London-listed partner, 888, will also become a takeover target. Many online sites operate a “skin” business model – in which they channel punters to a partner site in addition to running their own games. They get a rake, the money that the operator charges for each hand of poker.

The skin model worked for PartyGaming at first; it was a good means to bring customer liquidity to the poker game, but it no longer seems to need it. On 10 October, PartyGaming decided to stop its skin, Empire, channelling punters to its poker site. Additionally, UK casino group Gala’s Coral Eurobet has decided it will cease being a PartyGaming skin.

Observers speculated that 888, on to whose site Empire Online directs customers, would be highly attractive to someone like PartyGaming or Sportingbet. 888’s Pacific Poker game has 8% of the online poker market, compared to PartyGaming’s PartyPoker’s 50%. Last week’s trading update from 888 was pretty upbeat. The company, which has a £520m market cap, is understood to want to beef up its business through acquisitions.