U.K. gaming group PartyGaming on Friday agreed to purchase certain online gaming assets of rivals Empire Online (EOL) and Intercontinental Online Gaming (IOG) for total consideration of $66.3 million in shares to help replace revenue lost when it was forced to leave the U.S. after its senate passed the Unlawful Internet Gambling Enforcement Act.
While PartyGaming has reported improved revenues in recent weeks, the company took a major hit after the prohibitive legislation passed. The United States represented three-quarters of its customer base and it has had a difficult time taking up the slack in non-U.S. markets. On Oct. 20, the company reported a 2 percent loss in average daily revenue from its non-U.S. operations.
PartyGaming said in a prepared statement that it would acquire EOL's NoblePoker.com, and Clubdicecasino.com and IOG's Fair Poker, Magic Box Casino and Miss Bingo sites, forecasting a combined year-end profit of $8.5 million ($6 million from EOL and $2.5 million from IOG) in 2007 from the acquisitions.
The group is funding the acquisitions by issuing 115,193,842 new shares worth approximately $72 million at its current price. Under the terms of the agreement 83,325,934 shares will go to EOL and 31,867,908 will go to IOG.
EOL, founded by Israeli entrepreneur Noam Lanir, will retain about $40 million, which will be combined with its existing cash balance of $250 million to establish a fund to "invest opportunistically in both private and public businesses and across the small, mid and large-cap range of companies," according to a prepared statement. The company is reportedly planning to invest in equities, bonds, derivatives and real estate. Lanir will continue to run EOL, despite rumors to the contrary.
Party Gaming followed up the acquisition deal by striking a four-year agreement with I-gaming software provider Playtech, under which the five newly acquired Web sites currently operate. The agreement allows them to continue to operate under the same software provider.
PartyGaming Chief Executive Mitch Garber will reportedly receive shares and a minimum bonus of $3.9 million for staying at the helm through 2007.
PartyGaming and EOL have previously enjoyed a partnership, but suffered a bitter split in late 2005 when PartyGaming ring-fenced its own poker players from those of four affiliates including EOL, which relied on PartyGaming software.
The split hit EOL hard, taking 10 percent off its profits, and resulting in a lawsuit against PartyGaming last December.
The dispute was settled a short time later in February when PartyGaming purchased all assets relating to EOL's poker brand, Empire Poker, as well as Starluck Casino and Ace Club Casino, for $250 million.
EOL said that its Directors agreed to sell now because the company's remaining operating business would be unable to thrive as a stand-alone business and would be able to grow better as part of a larger group. The company further said it will receive around $38 million from the sale.
Neither EOL nor IOG accept U.S. customers.
Subject to the approval of shareholders for all parties, completion of the deals are expected this month.