PartyGaming new bid to buyout Empire

[Sniper]

PartyGaming in early bid talks with Empire

LONDON (Reuters) - Online casino and poker room PartyGaming (LSE: PRTY.L - news) made a preliminary bid approach to troubled rival Empire Online (LSE: EOL.L - news) , but analysts questioned talk on Thursday of a 400 million pound price tag.

Empire is both a rival and a partner of PartyGaming, using PartyGaming's online poker rooms for players it attracts via its own website www.empirepoker.com. (http://www.empirepoker.com.)

But last month, Empire warned net profit would fall 10 percent below forecasts after PartyGaming ringfenced its own poker players, preventing players from "skin" companies like Empire from playing with them in the same Internet poker room.

The announcement follows media stories on Wednesday saying PartyGaming, owner of www.partypoker.com (http://www.partypoker.com), was in talks to buy Empire for 400 million pounds, a figure that analysts found surprising.

"Empire is just 30 or 40 marketing people," said one analyst who declined to be named. "That means PartyGaming would be paying 10 million pounds per person."

The figure was reported by the Dow Jones (news) news agency, quoting sources close to the situation.

It is not the first time Empire has been in bid talks.

In September it said it had received an 790 million pound approach from bigger rival Sportingbet (LSE: SBT.L - news) , boosting its shares to an all-time high of 287 pence.

But after Sportingbet completed due diligence and those talks broke down on September 20, its shares have rapidly declined. They were up 7.4 percent to 124 pence by 9:06 a.m., valuing the group at around 365 million pounds.

Investors' main concern is that Empire Online does not truly own its customers and they will slowly migrate to PartyGaming.

"Any offer proposal would depend upon, in particular, PartyGaming being satisfied as to a number of material pre-conditions, including due diligence and the prospects for Empire's business," PartyGaming said in a statement.

This makes no sense to me. Why dilute your equity when you can compete with Empire and kill them in 12 months. If Party wants to do any purchases, it should be looking at Pokerstars.

[r3vbr]

[ QUOTE ]
This makes no sense to me. Why dilute your equity when you can compete with Empire and kill them in 12 months. If Party wants to do any purchases, it should be looking at Pokerstars.

[/ QUOTE ]

Partypoker will go broke and PokerStars will take over everything.

Pokerstars is already the biggest online site. Party is crap. Wonder how much PokerStars would be worth at the market

[Sniper]

It actually makes perfect sense... Empire is worth more than just the the skins revenue... in fact, if Empire was to shut down its Party skin operation completely, it would still be a profitable company.

Industry consolidation... expect more!

[Sniper]

PartyGaming rubs salt in Empire's wounds
By Martin Dickson
Published: November 4 2005 02:00 | Last updated: November 4 2005 02:00

Empire Online's life as a quoted company looks set to be almost Hobbesian: nasty, brutish and short.

The online gambling "skin" company, which delivers punters to gaming operators' sites in return for a share of the "rake", or percentage of the bet taken by the operator, floated in June with an issue price of 175p a share. It saw an indicative 270p a share approach from Sportingbet come to nothing in September; and faced a share-price collapse last month after PartyGaming decided to move all its own poker players to a new operating platform.

Yesterday's news of a preliminary approach from PartyGaming left Empire's share price down 2p at 113½p. This reflected some uncertainty about whether a deal will take place and considerable certainty that if it does occur it will be well below the flotation price.

PartyGaming's statement yesterday included a caveat about Empire's business prospects. Coming from a group whose decision to change the rules has done so much to curtail those prospects, this reads like rubbing salt in Empire's wounds.

There must be a question whether Empire's shareholders would have done better if there had been a full-blown auction in the light of Sportingbet's interest. But the risks to Empire's business model from being substantially dependent on a platform owned by a significantly larger rival would surely have become apparent through any competitive sale process and would have been priced into any offer that resulted.

Yet both sides could still gain from a deal. Empire would be part of a much larger group with what should be a less structurally flawed plan, while PartyGaming would get Empire's expertise at bringing in new gamblers and would also benefit from being less reliant on the US.

Whatever the possible upside, however, the story of Empire is a reminder that the volatility of the online gaming sector is best enjoyed as a spectator sport.

[goodguy_1]

[ QUOTE ]
This reflected some uncertainty about whether a deal will take place and considerable certainty that if it does occur it will be well below the flotation price.


[/ QUOTE ] hahah the stock was floated at 175p.

I cant see Party paying a premium to the current price or even the current price.. bunch of arbs,and specultors in it now shorting PRTY and getting long EOL..Could be a bit of a drag on PRTY's stock in the nearterm even thu the deal would be small compared to Party's mkt cap. Investors could be worried that Party may overpay for Empire which imo is now a piece of crap.

I was thinking about getting short EOL.L yesterday about an hour before the UK close but my broker could not get a borrow on the shares- this was CSFB also not some crappy discount broker. Stock peaked yesterday morning ~130p right now its down to 108p.

I dont see value at these levels for a Party buyout. I figured out the shares outstanding/market cap. yesterday from another of your posts from a press release. Seems to me this stock will go down much further before Party pulls the trigger. Is Empire really worth $500-$600M or even half that. You said earlier that EOL would be profitable business without it's Skin Network poker operations thats doubtful but I'd like to hear more of your thoughts on this idea.

[Sniper]

[ QUOTE ]
You said earlier that EOL would be profitable business without it's Skin Network poker operations thats doubtful but I'd like to hear more of your thoughts on this idea.

[/ QUOTE ]

Remember, that Empire is basically a marketing company for the following brands...

EmpirePoker.com, NoblePoker.com, 888Casino.com, AceClub.com, ClubDiceCasino.com, MonacoGoldCasino.com, CarnivalCasino.com, YouBingo.com


The revenue breakdown last quarter was 75% Poker, 25% Casino. With 50%+ operating margins!!

Empire also made this statement in its 3rs Qtr release...

[ QUOTE ]
During the third quarter of 2005 the Company completed the acquisition of the casino and poker brands known as “Club Dice” and “Noble Poker”. Since acquisition the Company has made a significant effort to build both brands, which will continue through the final quarter of this year. Both of these brands are supported by the, well respected, Playtech software platform. These acquisitions have been integrated successfully and are now contributing strongly to the Company’s growth in new real money players for both poker and casino.

These new brands, together with the newly developed backgammon platform will provide a more diversified range of products and are expected to contribute significantly to the future growth of the Company.

Since the beginning of Q4 2005, the Company has acquired more than 40% of its new real money players with these new brands

[/ QUOTE ]

Empire is also not releasing quarterly financial statements, so we have no idea what its balance sheet looks like, but it should have a some cash remaining from the IPO. Without a balance sheet, its hard to properly put a value on the company.... Anyone have a copy of the IPO perspectus?

[goodguy_1]

I think you are overestimating the value of Dice Casino and Noble Poker.

Having 50% operating margins doesnt mean much if your core business(poker)see a 50%-75%drop in revenues.

I've perused past earnings statements and was amazed at how miniscule revenues were compared to it's market cap...and this was before the [censored] hit the fan. I was looking thru something that looked similar to a prospectus a couple weeks ago..I'll see if I can find it.

[Sniper]

[ QUOTE ]
Having 50% operating margins doesnt mean much if your core business(poker)see a 50%-75%drop in revenues.


[/ QUOTE ]

Don't forget that the majority of expenses are directly tied to revenue... if poker revenue dropped 50%, related expenses are also likely to drop almost 50% as well.

[ QUOTE ]
I think you are overestimating the value of Dice Casino and Noble Poker.

[/ QUOTE ]

Empire 3rd Qtr Actuals:
Rev = 31.4m (Poker = 23, Casino = 8.4)
Profit = 16.1m

Empire 4th Qtr outlook (Goodguy scenario - 50% drop in poker rev):
Rev = 19.9m (11.5+8.4)
Profit = 9m (using 50% of 75% attributed poker expenses reduction)

My feeling is that 50% reduction is too much, as they continue to add new players to replace old players leaving. I believe empire guided about 10% lower. (if my currency conversion math is right, the consensus analyst estimate for 2006 rev is $140m)

For another thought on looking at the company, consider that its really just a Super Affiliate with only 40 employees /images/graemlins/wink.gif

[goodguy_1]

[ QUOTE ]
Don't forget that the majority of expenses are directly tied to revenue... if poker revenue dropped 50%, related expenses are also likely to drop almost 50% as well.

[/ QUOTE ]
that may be on paper but not reality for must businesses that have seen draconinan drop in revenues there expenses dont fall in line with revenues


[ QUOTE ]

Empire 3rd Qtr Actuals:
Rev = 31.4m (Poker = 23, Casino = 8.4)
Profit = 16.1m

Empire 4th Qtr outlook (Goodguy scenario - 50% drop in poker rev):
Rev = 19.9m (11.5+8.4)
Profit = 9m (using 50% of 75% attributed poker expenses reduction)

My feeling is that 50% reduction is too much, as they continue to add new players to replace old players leaving. I believe empire guided about 10% lower. (if my currency conversion math is right, the consensus analyst estimate for 2006 rev is $140M


[/ QUOTE ]
that 2006 consensus you can throw out the window ..it's ancient history unless you know that consensus is postsplit from unbiased sources that cover Empire or you have access to something similar to an institutional real-time version of FirstCall-UK becuase none of the analysts know what the fock is going on right now(FC which costs ~$25K a year here in the states...I finagled my way into getting instituonal access to FC trading for myself before Thomson bought out FirstCall and decide to raise FC from $2K a year to $25K-fockers)

If they did 31.4M total in Q3 for a prorated 05 total revenues ~$125M..(just using numbers off the top of my head-not exact stuff) ...that analyst estimate you just referred to is most definetly an estimate 2006 pre-cataclyism. Empire will not do $140M in revenues in 2006.

I'm not saying total poker revenues will go down 50% quarter-to-quarter but Empire is losing players and revenues right now. In my opinion they will not be able to replace players to prior levels or be able or even maintian current levels-their core business is shrinking right now.

The casino revenues are laughable. Please dont use Q3 05 as a template that will proably go down as their best quarter ever. Yes Q3 was sweet but that is past history. Empire's one or two warnings on upcoming quarter were made just to soften the fall. 10% hahah fock the guidance..you know they are low-balling that.

Surely if 2006 revenues were 140M and net were the expected $70M -I'm just using ballparks here...the stock would have value only trading at 3 times sales and and a forward pe of ~8...but the market is already telling you that the $140M is no where close to a reality. Maybe they slightly improve casino revenues but their core business-poker sees a sharp fall off-maybe not 50% maybe more maybe less.

Either way the anaylsts estimates you are using are wrong and pre-SPLIT the market has already confirmed that.

Assuming the current mkt.cap is around $550M .
Even if they did $100M in reveues in 2006 and net $50M the stock would still be a pretty good value -only trading a 10x forward earnings. The market seems to be saying things may be even worse than that thu. Problem is assuming the stock seems cheap at 10X a 2006 estimate that is down $40M from prior estimates..I really dont see any huge drivers of growth for Empire's main business right now without Party-the whole business is consolidating ..growth is slowing across the board.

It'll be interesting to see how this plays out. I have no current position in PRTY or EOL. I'm thinking about getting long Party here on pullbacks. If Party does flaunt another pr ploy concerning a buy-out it may be a chnace to get in the stock at good levels when the stock sells off. Party should not be over-paying for Empire -it will really hurt PRTY if they overpay for EOL. PRTY seem pretty shrewd thu I dont think thats going to happen. If it was 4 months ago when its stock was at all-time highs post ipo and it was still in good stead with analysts and instituions it could get away it-but in this new tougher environment value is key...consolidation is a bitch.

[Sniper]

[ QUOTE ]
that may be on paper but not reality for must businesses that have seen draconinan drop in revenues there expense dont fall in line with revenues

[/ QUOTE ]

Right, but the Poker business is not like most other businesses, which would love to have 50% profit margins. If you take a look at parties financials, you should be able to extrapolate why I think Empires expenses will drop in line with revenues... also Empires largest expense is affiliate payouts (which are directly tied to revenue).

[ QUOTE ]
that 2006 consensus you can throw out the window ..it's ancient history unless you know that consesus is postsplit form unbiased sources that cover the Empire or you have access to something similar to FirstCall-UK..

[/ QUOTE ]

The consensus estimates are post split and latest Empire guidance. Keep in mind that Empire had been attracting members at a fast clip, while this has certainly slowed, I doubt that it comes to a stop.

The pre-split estimates were 160m for 2006.

[goodguy_1]

[ QUOTE ]
Keep in mind that Empire had been attracting members at a fast clip, while this has certainly slowed, I doubt that it comes to a stop.

The pre-split estimates were 160m for 2006.


[/ QUOTE ]
all too rosy imo

Do you really put stock in analysts' revenue estimates that only take FY06 down by 12.50%-not me.

btw how many investments banks are covering EOL?
How many ib's make up that consensus number? very important to get an unbiased assessment.

Hopefully more than 2 or 3. It is also highly likely that one or two ib's covering EOL right now were the original bankers for the companies so they may not be as unbiased as we'd hope /images/graemlins/smile.gif

[Sniper]

[ QUOTE ]
Do you really put stock in analysts' revenue estimates that only take FY06 down by 12.50%-not me.


[/ QUOTE ]

Just to be clear, I am not saying that I support the consensus numbers, just reporting them!

[_And1_]

Not that is any news, but eurobet leaving the "old party net" is now official, expect Empire Online to drop as market opens tomorrow....

[Sniper]

[ QUOTE ]
Not that is any news, but eurobet leaving the "old party net" is now official, expect Empire Online to drop as market opens tomorrow....

[/ QUOTE ]

Old News (http://forumserver.twoplustwo.com/showflat.php?Cat=0&Number=3854932&an=0&page=0#Post 3854932)

Rumors that Party is backing away from its buyout offer are also weighing on Empire's stock.

[_And1_]

They will buy empire for crums

http://business.timesonline.co.uk/article/0,,9070-1868117,00.html (http://business.timesonline.co.uk/article/0)

"They're just deciding now if they're going to squeeze it and then buy it, or just kill it," he added.