Bwin PartyGaming Merger Possible

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(Bloomberg) -- Bwin Interactive Entertainment AG, an Austrian online bookmaker, is in talks with the PartyGaming Plc about a possible merger that would create a company with a market value of more than $4 billion.

The talks are "no indication" that there will be a merger, Vienna-based Bwin's head of investor relations, Konrad Sveceny, said in a telephone interview from Vienna. PartyGaming said in a statement today that it's in talks with "a number of companies" about potential consolidation, adding only that the discussions are at "a preliminary stage."

PartyGaming rose as much as 11 percent in London trading, the steepest intraday gain since May 6. Bwin shares advanced as much as 1.9 percent in Vienna to a 3-1/2-year high.

"We are in talks with a lot of competitors," Sveceny said. "Some of these talks are successful -- such as those with Italy's Gioco Digitale -- some end without any result."

Europe's online gambling market is the world's largest, at $8.7 billion in 2009, Barclays Capital analysts including Ed Birkin said in a research report in October. No European gambling operator currently has a dominant position. Among publicly listed operators, Bwin has the largest European market share by revenue with 8 percent, followed by PartyGaming with 6.3 percent and William Hill Plc, the U.K.'s second-largest bookmaker, with 4.5 percent, according to Barclays Capital.

Relaxing Prohibitions

"The low combined market share of the top European operators illustrates how fragmented the industry is, and that consolidation will likely take place in order for companies to remain competitive," Barclays Capital wrote in the note.

Europe will see a wave of mergers and acquisitions among gambling companies as the region's countries allow more Internet betting, Bwin Co-Chief Executive Officer Norbert Teufelberger said in October. PartyGaming owns the PartyPoker.com brand.

Governments are relaxing prohibitions on online gambling through foreign companies to bring currently illegal activity under the umbrella of taxation and regulation. Online gambling that is considered illegal, or not under the purview of local laws, is estimated at about 3 billion euros ($4.2 billion), according to Simon Holliday, director of H2 Gambling Capital, a Manchester-based market research firm.

In July, Gibraltar-based PartyGaming agreed to buy Cashcade Ltd., a bingo provider, for as much as 95.9 million pounds ($155 million). In September, Bwin said it would buy Italy's Gioco Digitale S.p.A. for up to 50 million euros cash and 2.3 million Bwin shares to boost its presence in the newly opened market.

PartyGaming shares were up 14.9 pence, or 5.5 percent, to 283.7 pence as of 1:12 p.m. in London, valuing the company at about 1.2 billion pounds. Bwin climbed 71 cents, or 1.5 percent, to 47.71 euros at 2:12 p.m. in Vienna for a market capitalization of about 1.7 billion euros.

The talks between the companies were reported today in Format magazine.

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