Partygaming and 888 Holdings in Informal Merger Discussions

30-Oct-2006, 16:42

PartyGaming and 888 Holdings are in talks to create a £1.6bn internet gaming company in the aftermath of the ban on online gambling in the United States.

The move comes as no surprise as both companies are scrambling to rebuild their businesses after their forced withdrawal from the U.S., which was, until now, the world's most lucrative gaming market.

Shares in the mainly London-listed sector collapsed, and PartyGaming dropped out of the FTSE 100 while 888 fell out of the FTSE 250 index.

Executives of the two companies have held preliminary talks over the past two weeks exploring a possible tie-up and further discussions are planned in coming weeks when Mitch Garber, PartyGaming's chief executive who is now on vacation, returns. Sources close to the companies stressed the talks were informal and at a very early stage.

Insiders say a combination of the two companies makes perfect sense as their businesses would complement each other.

PartyGaming is the world's largest online poker company while 888 is the biggest internet casino operator. The two already share an office building in Gibraltar, where they both have their headquarters.

With a market value of £1.2bn, PartyGaming dwarfs 888, which is worth £364m, and any merger is expected to take the form of a takeover. A deal is expected to take weeks to hammer out, rather than months, as internet companies can be put together relatively easily.

Should the takeover go through, the new company would probably be led by Mr Garber. 888's management team, currently led by John Anderson, is highly regarded and it is thought that Gigi Levy, due to take over from Mr Anderson at the end of the year, would have a senior role in the newly merged group.

It is believed that PartyGaming stands to gain most from a merger with 888. It used to get about 85% of its revenues from the US before it was forced to pull out. About 90% of its revenues come from poker, which requires a large pool of players to make it interesting for those playing, but the exit from the American market means that the number of players has dropped sharply.

888 has not been hit as hard as PartyGaming as it had already cut its dependence on the US to 50% of its business by expanding into 170 countries. The firm also focuses on online casino games, which are seen as more resilient, while poker makes up only about a third of revenues.

PartyGaming and 888 both declined to comment.

Mr Garber set out an acquisitive new strategy 10 days ago when he unveiled third-quarter figures. He said the group would push 'aggressively' into new territory, including Asia, and was in discussions with several firms. 'I believe this is a golden consolidation opportunity for PartyGaming. We are the online gaming company with the most firepower,' he said.