Partygaming Merger

£1.13 Billion Deal For PartyGaming To Control Bwin

In a reverse takeover in 2010, PartyGaming Plc acquired Bwin Interactive for a reported £1.13 billion pounds (approximately $1.76 billion US). The merger created the world’s largest online gambling company that is presently trading publicly.

The merged company upon its creation was 51.6% owned by Bwin with the remaining 48.4% owned by PartyGaming. The combined sites reported net sales of €682million. Following the merger, the new business listed in London and was expected to dominate the online market for sports betting, casino and poker.

Gianmarco Bonacina, a Milan-based analyst with Equita SIM SpA stated that it was viewed as both an offensive and defensive move, pointing out that that Bwin and PartyGaming were losing their share of the European market to Pokerstars and Fulltilt. Merger meant consolidation – a defensive move. Yet the USA it was a different matter – the combined companies wanted to break into North America and the merger put them in a better position.

There has been increased pressure in recent year in the online market. EU and US governments relaxed control of online gaming sites operating outside of their own borders, leading to greater competition for lucrative domestic markets making what was once illegal legal for the purpose of regulation and taxation.

Following the announcement, shares in PartyGaming rose 20%, which was the largest rise since December 2008, closing in London at 309.5 pence at 4:30pm. Bwin also had its largest increase in many years – the biggest since March 2000 saw an 18% rise, closing in Vienna at €42 euros at 5:30.

Opening in the Market

“Offshore” gambling markets where companies provide gambling services to customers in countries where gambling is banned, reported a 10-fold expansion between 2003 and 2010 – rising to €6.5 billion. These figures were released by a consultancy firm in Manchester, England named H2 Gambling Capital.

Countries that have relaxed and revised their rules regarding online gambling include Italy, France, Spain, Denmark and Ireland in Europe, and the USA and Canada in North America.

PartyGaming CEO Jim Ryan was pleased with the merger, stating that it would make the company a leader in the markets that are set to open to them.

AS part of the merger, people who owned shares in Bwin received 12.23 PartyGaming shares for each Bwin share. The transaction cost £1.13 billion based on PartyGaming’s closing share price of 257p on the day of the merger.

The deal granted Bwin shareholders the majority stake in the new company but it also transfers all liabilities and assets of the Austrian company to PartyGaming. A joint stock company was formed of the two companies in Gibraltar, which will be a reverse takeover.

Board In Favour

Both boards unanimously pressed shareholders to vote for the deal, pointing out that the mega-merger will offer superior economies of scale from a marketing perspective with marketing known to be the largest single cost of online gambling sites.

Both Bwin and PartyGaming held shareholder meetings in the first quarter of the 2010 financial year and the merger completed shortly after. Following, the merged name of Bwin.Party registered on the London market.

Some 28.5% of PartyGaming’s share owners supported the move, the equivalent figure for Bwin was 14.4%. Chairman of Bwin’s supervisory board Hannes Androsch favoured the deal despite owning under 10% of Bwin and receiving less than 5% following the merger.

Structural Changes for Greater Profit

Bwin’s co CEOs Ryan and Norbert Teufelberger became co-CEOs of the new company. Manfred Bodner became a non-executive director. The merger expected to “significantly” enhance their revenue over the coming years and cut costs annually by approximately €55million.