Merger speculation drives Party Gaming stock up

Informed market rumour drove Party Gaming stock up 11 percent Friday – an eight month high – on speculation that the group was about to sign a merger agreement with the giant Austrian online gambling group Bwin.
With media speculation mounting, Party Gaming issued a statement saying: “Further to recent press speculation, the Board of PartyGaming plc confirms that it is continuing to hold discussions with a number of companies in the gaming sector regarding potential consolidation opportunities. 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 with any party.”
The report that Bwin and Party were in negotiations appears to have orignated in the Austrian magazine Format, which quoted Bwin chairman Hannes Androsch as saying: “It’s true that talks are going on, but we don’t know yet whether they will succeed.”
Press reports indicated that a successful merger could create a super-company that would have a value in excess of $4 billion.
Later in the day Bwin’s head of investor relations, Konrad Sveceny, commented: “We are in talks with a lot of competitors. Some of these talks are successful – such as those with Italy’s Gioco Digitale – some end without any result.”
Europe’s online gambling market is the world’s largest, at $8.7 billion in 2009, Barclays Capital analysts said in a recent research report which claimed that no single European gambling operator currently has a dominant position.
The reseach found that among publicly listed operators, Bwin has the largest European market share by revenue with 8 percent, followed by PartyGaming with 6.3 percent and William Hill plc, the U.K.’s second-largest bookmaker, with 4.5 percent.
“The low combined market share of the top European operators illustrates how fragmented the industry is, and that consolidation will likely take place in order for companies to remain competitive,” Barclays Capital wrote in the note.
Governments in Europe are relaxing prohibitions on online gambling through foreign companies to bring currently illegal activities under the umbrella of taxation and regulation. Online gambling that is considered illegal, or not under the purview of local laws, is estimated at about Euro 3 billion, according to Simon Holliday, director of H2 Gambling Capital, a Manchester-based market research firm.

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