Party Poker makes takeover approach for Empire Online

[TightEnd]

Well Empire has been through the mill.

Talks with Sportingbet, Party takes away the players and now makes a takeover approach

Empire was worth £338m before today, and is up 10% on the news


This really is not a surprise, and I expect industry consdolidation to accelerate towards an end game of fewer, larger players as the industry matures

[TightEnd]

PartyGaming Approaches Empire Online About a Takeover (Update2)
2005-11-03 04:23 (New York)


By Paul Jarvis

     Nov. 3 (Bloomberg) --

 PartyGaming Plc, the world's largest online poker operator, said it may buy Empire Online Ltd. to grab
a greater share of the $8.2 billion Internet gambling market.
 
Shares of Empire rose as much as 9.1 percent.

 Empire, which in September ended talks on a possible bid from Sportingbet Plc, today confirmed in a statement it had an
approach. The proposal is subject to ``a number of material pre-conditions,'' including an examination of Empire's accounts,
Gibraltar-based PartyGaming said in a separate statement.
 
 PartyGaming is seeking to expand with an acquisition after saying in September it expected growth in the online-gaming market
to slow. That announcement triggered a 33 percent plunge by the company's shares on Sept. 6 and sparked concern about the
industry's outlook after investors snapped up stock of PartyGaming and rivals in initial public offerings earlier this year.
 
Shares of Empire rose as much as 10.5 pence to 126 pence in London. They were up 7.8 percent at 124.5 pence at 9:18 a.m. local
time, giving the company a market value of 364.5 million pounds ($647 million). Investors paid 175 pence a share in June's IPO.
 
PartyGaming stock advanced 1.5 pence, or 1.6 percent, to 94.5pence. The shares were sold for 116 pence each when the company
became publicly traded and rose as high as 176 pence in July.

Empire last month said annual profit will miss analysts' estimates by about 10 percent after PartyGaming moved to cut its
dependence on marketing partners. PartyGaming, which rents its online platform to customers such as Empire's EmpirePoker.com, in October
started steering customers toward its own tables and away from so-called skins such as Empire that direct customers to gambling sites.

Empire said Oct. 18 that the change had led to a slowdown in the daily percentage of profit taken each time a customer wins.
PartyGaming is the company's largest customer.

[byronkincaid]

So party take their players away from empire, empire share price goes down, party buy empire. Isn't that a bit dodgy? They obviously want to take empire customers away from the eurobet/intertops/multi platform which will I suppose almost destroy them.

[TightEnd]

It's certainly ruthless


Empire's main skill, according to the Sportingbet people, is in marketing skills and customer acquisition rates

[Royal Flush]

customer acquisition rates

Did they not do that buy poaching party's players and giving rakeback?

[TightEnd]

I should have clarified, Empire's competitive advantage is supposed to lie in the marketing skill required to acquire new customers cheaply.

hence my comment, "customer acquisition rates"

[Royal Flush]

Yeah, poaching Party players, looolloool

Everyone i know who plays on empire did so after the played on party when they were told rakeback was possible. Now i don't know how many people came to empire that way, but i can't see how empire have more marketing savy than party.

[TightEnd]

i'm not disagreeing I am just reporting that Sportingbet/Paradise, for one, considered that Empire had a skill in customer attractions over and above the obvious prior attraction of rakeback.

If this wasn't the case, and having stuffed Empire royally, why would Party now be potentailly shelling out £350m+?

[Royal Flush]

I don't know, thats why i am asking.

I am not sure if 350m is a small price to pay to finish of the network left behind, ensuring all the other players switch. This also gains them ALL of empires players for sure.

I imagine it gives confidence back to the market aswell, if investors see that Party are aggresivley increasing it's market share. 350 is probably a small price to do that.

[TightEnd]

I don't know, thats why i am asking.

I am not sure if 350m is a small price to pay to finish of the network left behind, ensuring all the other players switch. This also gains them ALL of empires players for sure.

I imagine it gives confidence back to the market aswell, if investors see that Party are aggresivley increasing it's market share. 350 is probably a small price to do that.

both of these reasons may very well be valid, I would guess though that Empire offers something on top in terms of its particular skills

remember that Party has been underperforming the market in terms of customer growth rates. Clearly screwing Empire solved that short term, but maybe this is a look beyond the one off benefits of migrating the Empire players back post rakeback

[TightEnd]

City comment from a Gaming analyst


" After a false start the consolidation of the online gaming sector is back on the cards. Online poker giant Partygaming is eyeing up Empire Online, it's biggest affiliate. Empire has been on the table before, when Sportingbet ran the slide rule ober it in September. Since then Empires share price has more than  halved. The balance of power now looks to be in Party's favour.

Party has good reason to snap Empire up. Empire is good at what Party isan't...attracting the huge numbers of players of the kind who stick around. Empire signed up more than 70000 new players in the first half of the year. Adeal also lets Party recapture the fees it pays away for Empire's traffic.

Furthermore Party has put the squeeze on Empire. The threat in October to treat Empire customers as second class citizens helped knock  a third off Empire's share price in a day. Party can now nab Empire at amuch better price. Empire's profits are expected to be 30% lower next year and is now only trading on 9x 2006 earnings, down from 14x. Yet it is still attracting players faster than ever.

A few weeks ago Empire might have been able to play hardball. It could have threatened to go it alone or found other partners apart from Party. However incvestors now know how much Empire depends on Party for its profits, and it is not now obvious that Empire can walk away"

 

[AlrightJack]

I expect that when Party release their next profit statement their share price will soar again.  The reason? Blackjack. The long term effect on rake will be detrimental due to players who would be good rakers skinting themselves on blackjack, but the short term effect will be increased profits.

[TightEnd]

AJ, I have certainly heard from several sources that Blackjack is proving extremely popular and a real moneyspinner for Party

I think you may be onto something there

[AndrewT]

City comment from a Gaming analyst

'Empire is good at what Party isan't...attracting the huge numbers of players of the kind who stick around.'

Er, no. Empire were essentially selling the same product as Party, except were charging their customers less for it. Party allowed them to do this because it helped grow their poker room, and in online poker, size matters. Now they're bigger than anyone else, they don't need Empire any more, so they cripple their business, wait for the share price to plummet, then snap them up on the cheap. Empire were always on borrowed time.

I've seen a few comments from City people about online poker, and it's clear that they don't really understand the nuances of the sector - they just look at bottom lines.

BTW, Tightend is right - you think online poker is profitable? It's nothing compared to online casinos...

[TightEnd]

p.s that wasn't my quote, it was an analyst contact of mine which i reproduced, but I take your point about the City and analysis of Poker in general Andrew