Paris:
Two of the biggest European operators of Internet betting sites, PartyGaming and Bwin Interactive Entertainment, said Thursday that they planned to merge, forming the world's largest publicly traded online gambling company.
The deal comes at a time when a number of governments both in Europe and the United States are relaxing the rules on online gambling, hoping to tax the activity and use the revenue to reduce gaping budget shortfalls.
"We will immediately be a leader in these markets as they open up," the chief executive of PartyGaming, Jim Ryan, said Thursday during a conference call.
PartyGaming, whose shares are traded in London, was once the world's largest Internet poker site, but it was hit hard by a crackdown in the United States on online gambling that was passed into law in 2006. The company immediately withdrew from the country, costing it more than three-quarters of its business and ceding the market to privately held companies based in offshore locations, including PokerStars and Full Tilt.
On Wednesday, the Financial Services Committee of the House of Representatives approved a bill that would overturn the 2006 law. Supporters say taxes on Internet betting could yield as much as $42 billion for the government over 10 years.
In Europe, Italy and France recently began allowing privately owned gambling sites to operate in competition with state-controlled monopolies. Other countries are considering similar moves, allowing them to tax Internet betting, a business worth nearly $30 billion globally, according to H2 Gambling Capital, a consulting firm.
Until now, online gambling has operated in a legal limbo across much of Europe, with governments neither officially allowing it nor able to tax it. The changes could provide opportunities for online gambling companies like PartyGaming and Bwin to expand their business, analysts say, but could also create new financial pressure.
"They're going from a no-tax environment to a high-tax environment, and that's challenging," said Warwick Bartlett, chief executive of Global Betting & Gaming Consultants. "This is a deal that's being made out of necessity rather than choice."
The merger would bring together companies that in 2009 generated gambling revenue of 682 million euros, or $893 million, and earnings before interest, taxes, depreciation and amortization of 196 million euros. Under the merger agreement, Mr. Ryan of PartyGaming would share the chief executive role with Norbert Teufelberger, who is currently co-chief executive of Bwin, along with Manfred Bodner. Mr. Bodner would become a nonexecutive director.
Analysts say the companies are a good fit because Bwin has a big presence in sports betting while PartyGaming is stronger in online poker and casino games. The deal would allow them to cut costs and to cross-promote each other's sites, potentially reaching new customers.
The shares of both companies surged Thursday on news of the deal, which follows months of speculation that Bwin and PartyGaming might merge. Now, analysts say, further consolidation is likely in the industry.