Lombard

July 29, 2010 8:17 pm

Full house: PartyGaming deals itself two bosses

Shareholders in UK-listed PartyGaming and Bwin of Austria have forsaken their traditional poker faces to celebrate the long-awaited announcement of a deal. Shares in both online gaming companies jumped on Thursday.

There are plenty of reasons to be pleased at the prospect. The enlarged company could more easily see off the challenge from US interlopers in the European market. It would also be better positioned to return to the American market if regulations allow – and the odds on that outcome are shortening.

Thursday’s announcement followed hard on the heels of a committee vote in the House of Representatives that brings legalisation of some online gambling closer. American politicians may make righteous-sounding claims about wanting to protect consumers, but the reality is that the US, like other cash-strapped countries, wants a croupier’s take of the profit from online gaming. That’s a price PartyGaming – brusquely forced out of the US four years ago – would be happy to pay in exchange for regulated access to the market. Another impediment to gaining a US gambling licence should be removed by an agreement struck as part of this deal with PartyGaming founder shareholders Ruth Parasol and her husband. Under these new articles, the board could oblige them to sell down their stakes if regulators set such a disposal as a condition of the company’s expansion.

That said, like all alleged “mergers of equals”, this one deserves to be treated with a little caution. Of the projected €55m (£46m) of gross pre-tax synergies from the deal, €42m will come as duplicate costs – headquarters, technology and marketing, for instance – are eliminated. The other €13m would be achieved from revenue improvements, which are harder to guarantee, though the targets look conservative based on PartyGaming’s experience of applying its techniques to prior acquisitions.

The enlarged group would be the first London-listed “Societas Europaea” – though the European company structure shouldn’t behave differently from a plc.

More worryingly, the deal would put two very different chief executives in the same office at the headquarters in Gibraltar. Jim Ryan, PartyGaming’s boss, told analysts on Thursday that his working relationship with Bwin’s Norbert Teufelberger would be “magical”. It’s true that Mr Teufelberger and Manfred Bodner (who would retain a non-executive role) co-existed as co-chief executives of Bwin for years. But they were joint founders of the Austrian group, standing shoulder-to-shoulder at the roulette table as they bet on expanding the business they had built. Bitter experience suggests that when hired hands and entrepreneurial spirits are forced to work together, the magic can fade as quickly as a gambler’s winning streak.

Sky is no limit

Jeremy Darroch wants people to look at Sky in a different way. And he doesn’t mean through 3D specs.

Signing a long-term exclusive deal with HBO, making The Sopranos and The Wire available only on satellite, may not have the impact that corralling Premier League football had on BSkyB’s fortunes. But it is a clear signal that following Ofcom’s ruling that he has to sell its Sky Sports 1 and 2 channels at regulated wholesale prices, BSkyB’s chief executive wants to play a different ballgame.

He has already started to position BSkyB as a high-end offering of attractive content across a wide range of channels. The old business model was either “We have your favourite sports: if you want to see them live again, you have to pay up” or “We’ve paid top-dollar for the first-run rights to the show you got used to on free-to-air TV – now you have to pay us to watch The Simpsons or House.”

Now BSkyB has the confidence to run dramas without knowing if they will be popular or not. It is also saying to rival BT that it has something – an almost limitless capacity for high-definition (HD) programming – that can’t be matched on the Freeview platform. It’s like an airline extending Business Class further down the cabin. Expect next to find exclusive HD versions of Freeview channels such as ITV2 or More4 on Sky, while 3D is reserved for what Mr Darroch calls “big- event TV”. In short, BSkyB wants the audience to think of it as a commercial version of the BBC – if only as a provider of indispensable quality.

Just how much this could be worth to Rupert Murdoch is evident from Thursday’s full-year results. News Corp should get less than £100m out of BSkyB this year, 39.1 per cent of a £336m dividend, after tax. Full ownership would give it access to all of the £626m in free cash flow. That looks like a sharper deal – even in standard definition.

BSkyB: ben.fenton@ft.com

andrew.hill@ft.com

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