This may be of interest. Financial Times website.

Empire sues PartyGaming as takeover talks fail
By Tom Griggs in London
Published: November 21 2005 09:38 | Last updated: November 21 2005 12:29

PokerEmpire Online upped the stakes in the increasingly fractious world of online poker as the internet gambling group said on Monday that it had ended takeover talks with PartyGaming after the larger rival revised the terms of its bid.

Empire added that it planned to take legal proceedings against the internet poker giant for moving its punters out of the system it shared with so-called “skins” such as Empire and shifting them to a unique proprietary system.

The smaller group which failed in takeover talks with another rival, Sportingbet, in September, said the original offer, thought to be about 130p per share, would have valued Empire at 10 per cent of the enlarged group, but that after continued delays the revised proposal was “significantly different both in price and structure and at a level that cannot be recommended”.

PartyGaming said on Monday that its revised offer was worth approximately 60p a share.

Shares in Empire fell about 5 per cent in early trading on Monday but by late morning, the shares had improved on Friday’s close by over 7 per cent to 68p. Although the shares have lost any benefit from takeover speculation, Charles Wilson, analyst for Numis Securities and Empire’s house broker said that investors thought PartyGaming had miscalculated Empire’s potential value.

Since listing in June, Empire shares have fallen over 60 per cent. Monday’s news added to the uncertainty in the sector. However, Mr Wilson said that there was still potential value in the world’s fourth largest online poker site, despite fears over the effect of legal action on profits earned through its “skin” site.

Empire’s reliance on its “skin” strategy had left it at the mercy of PartyGaming, which has not been shy of taking pot shots at its smaller rival. Last month, Empire warned that profits would be 10 per cent below expectations as a result of PartyGaming’s decision to ring fence its own players.

Analysts said that the company would now have to focus on its own platforms such as Noble Poker but that it would take time for Empire to replace the earnings derived through its links to PartyGaming, despite its strong marketing strategy.

Empire on Monday reiterated its strategy to increase the number of real money players and said that it was adding 500 new players per day in November. It added that results for the full year would be broadly in line with expectations including net profit of about $37m from proprietary sites such as Noble Poker and Club Dice casino without any link to PartyGaming. It added that well over 50 per cent of the new real money players were using these sites.

Following the initial announcement of an interest in Empire, PartyGaming refused to comment on whether it would proceed with the bid and then announced the purchase of two smaller skins, MultiPoker and IntertopsPoker for $14.5m and about $4m respectively.

In addition, Coral Eurobet, the second largest skin, was purchased by Gala, the casino and bingo operator, and said that it would leave the PartyPoker platform.

Skin sites such as Empire Poker link to an online game engine operated by PartyGaming but keep a proportion of the “rake”, a percentage of the winnings from each game. Different sites share the same game engine and users to ensure there are always enough players.

However, last month, PartyGaming upgraded its poker platform so it could cross sell its other gambling products and said that it would no longer include its players in the shared system.