*Online poker group in discussion with sports betting rival Bwin
*PartyGaming merger would deliver commanding position
The online poker group PartyGaming is understood to be in talks with its Austrian sports betting rival Bwin about a merger that could be worth more than £2bn and give it some much-needed clout in internet sports betting.
The two companies are believed to have been in discussions since last summer and there was intense speculation about a deal before Christmas. But after a press report on Bwin's interest, PartyGaming was forced to admit to negotiations.
The company also said it was talking to other potential partners, pushing its shares up more than 6% to 285.5p on hopes of a bid battle.
"The board of PartyGaming confirms that it is continuing to hold discussions with a number of companies in the gaming sector regarding potential consolidation opportunities," the firm said in a statement to the London Stock Exchange. "As all such discussions remain at a preliminary stage, there can be no certainty as to whether or not such discussions will result in any form of transaction."
The Austrian financial magazine Format quoted Hannes Androsch, Bwin's chairman and largest shareholder, as saying: "Talks are going on but we don't know yet whether they will succeed."
PartyGaming, owner of the PartyPoker website, is keen to be involved in the consolidation of online gambling. Last July the company, which gets almost 80 million players a day, announced the takeover of Cashcade, owner of Foxy Bingo, for just under £100m. In November it snapped up the assets of WPT Enterprises, organiser of the World Poker Tour.
Merging with Bwin would give Party Gaming a commanding position in sports betting. The Austrian company is not the only potential partner with which it is talking, although PartyGaming refused to name other potential partners. London-listed 888 Holdings and Sportingbet, and Sweden's Unibet, are all understood to be looking at consolidation opportunities.
The acquisition of WPT, meanwhile, signalled PartyGaming's desire to return to the US, a market that has caused some real headaches for the firm in the past.
Having shot into the FTSE 100 when it floated in 2005 at a value of £5bn, which netted its four founders almost £1bn, the company became embroiled in a fierce fight with the US authorities when they cracked down on online gambling. Party Gaming had to close its US operation and then last April it agreed a $105m (£71.3m) settlement with prosecutors there to reflect the proceeds of the internet gambling services it provided from 1997 to 2006, when PartyGaming offered internet gaming to US players, including real-money poker and casino gaming. The company admitted that even before the 2006 crackdown – which forced it to abandon the US market – some of its third-party activities had broken US law.
Analysts noted a number of strategic and cost-saving benefits from a merger with another company. Numis Securities' analyst Wyn Ellis said consolidation was seen as largely inevitable in the young online gaming industry and there were savings to be had from combining technology and other operations. "Everybody has been talking to everybody," he said.
He noted that a combination of Party Gaming and Bwin would give them the top slots in online casinos and bingo, the best sporting bets book and enhanced liquidity in poker. "The strategic logic is very strong … It fits together neatly," he added.
Ellis said merger talk also reflected gaming companies' move into business-to-business projects where they provide products and services to third parties such as media companies wanting to launch gaming offshoots. That focus would only increase as more countries start to regulate and issue licences, which are likely to go to the big incumbents in those markets. Established firms can then use that position to raise business from newcomers.
Talk of a Bwin tie-up for Party Gaming follows Thursday's announcement of a deal between Aim-listed gaming software firm Playtech and the Nasdaq-listed lottery operator Scientific Games in the US.
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