• Empire Online shares fall despite PartyGaming bid approach

By Michael Harrison November 4, 2005 (The Independent) - PartyGaming, the controversial internet gambling company which floated in June, disclosed yesterday it had made a takeover approach to the rival poker site Empire Online. The approach is the second that Empire has received in the past two months and, unusually, it was followed by a fall in the company's shares rather than a rise. This was because PartyGaming poured cold water on suggestions that it might pay as much as £400m and because its approach coincided with news that Coral Eurobet, which operates what amounts to a customer-sharing arrangement with Empire, is withdrawing from the deal. Empire's shares fell last month for a similar reason after PartyGaming announced that in future it would ring-fence its poker players so that players logged on to so-called "skin" operators such as Empire and Coral Eurobet could not join in the same games. This has the effect of dramatically reducing the number of tables and players skin operators can gain access to and hence their potential revenues. Analysts were puzzled as to why PartyGaming, whose chief executive is Richard Segal, would be interested in buying Empire at all, let alone pay a rumoured £400m. Shares in Empire fell 2p to 113.5p, valuing the AIM-listed company at £332m. A rival gaming company, Sportingbet, made an approach to Empire in September, valuing it at 275p a share, or £790m. But the talks broke down after Sportingbet completed due diligence on Empire, since when its shares have fallen in value by 60 per cent from a high of 287p. Investors in PartyGaming have experienced a similar roller-coaster ride since the company floated four months ago. Despite the fact that online gaming is illegal in the United States, where the bulk of PartyGaming's customers are based, the company successfully floated with a price tag of £5bn. The float valued the stakes of the company's three founders at £3.7bn and made one of them, the former internet porn baron Ruth Parasol, worth £832m. She cashed in £189m worth of shares alone in the offer while another founder, Anurag Dikshit, cashed in £165m of his £1.6bn holding. The value of the company subsequently soared even higher to £7bn as the shares rose to 175p, only to collapse after a profits warning within two months of going public. The company is worth £3.7bn based on last night's closing price of 93.25p. PartyGaming cautioned that its approach to Empire was "preliminary and non-binding" adding that there was no certainty any offer would be forthcoming. "Any offer proposal would depend upon, in particular, PartyGaming being satisfied as to a number of material preconditions, including due diligence and the prospects for Empire's business," the company said. The skin operators run their own poker games but use PartyGaming's platform and poker rooms. PartyGaming said only 4 per cent of its poker revenues came from the skins. The withdrawal of Coral Eurobet, which is now owned by Gala, would have very little effect on it but a lot of impact on other skins such as Empire, who shared players between themselves. Coral Eurobet provided an estimated one-third of the players who joined in games with players logged on to Empire and the poker sites run by the other two skin operators - MultiPoker and Intertop.

> Read the full story here Source: Independent.co.uk

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