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Howard Stutz

Shuffle Master scraps acquisition of European online gaming provider

28 June 2012

Shuffle Master, Inc. abruptly dropped a planned $28.5 million acquisition of a European-based online gaming provider Wednesday and expressed concern about the slow pace for legalizing Internet poker in the U.S.

Shuffle Master said it was pulling out of a deal to purchase Ongame Network Limited, blaming a decline of business conditions in Europe since February, as well as "uncertainty surrounding the timing of legalization and the rollout of online poker" in the United States.

Shuffle Master Chief Executive Officer Gavin Isaacs said the decision came "after careful consideration" and a realization that the company "will not achieve the near-term results we initially expected and will require a larger ongoing investment than anticipated."

Analysts, who had praised the purchase when it was announced in March, gave Shuffle Master credit for backing away when it became clear it didn't make financial sense.

"The decision not to acquire Ongame is certainly a setback for Shuffle's interactive growth strategy," Roth Capital Partners gaming analyst Todd Eilers told investors. "Many of our contacts indicated Ongame was one of the top poker networks and positioned the company very well for the approval of I-gaming in the U.S."

Ongame Network is a subsidiary of Services of Austria and is one of the world's largest poker service providers to online gaming operators. Ongame's global network includes more than 25 brands and operators, as well as regional networks in France and Italy.

Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski said Shuffle Master would have been forced to spend more on Ongame, which could have undermined the company's cash flow and earnings.

"Management was not certain whether it could achieve its own internal targets without the passage of U.S. online legislation, the timing of which appears incredibly difficult to determine at the present point in time," Wieczynski said.

Shuffle Master officials are still expected to appear in front of Nevada gaming regulators next month to seek approval of an interactive gaming license, despite the elimination of Ongame from their planned portfolio.

Sources said Shuffle Master, in performing its due diligence work with Ongame, may have found eliminating portions of the company's previous Internet gaming businesses that wouldn't pass muster with Nevada gaming regulators, made Ongame far less valuable.

During International Game Technology's interactive licensing hearings earlier this month, company officials told state gaming regulators that some business units in Entraction - a Swedish online gaming business the company bought - were eliminated because they would not have been suitable under U.S. law.

"When we signed the definitive agreement, we believed that general market conditions and Ongame's sales pipeline supported the purchase being neutral or modestly accretive to the company's (cash flow)," Isaacs said.

Isaacs said Shuffle Master will continue to seek opportunities in online gaming.

During an analyst presentation in New York earlier this month, Isaacs said Shuffle Master would focus on its core businesses, including table games and casino management equipment.

Shuffle Master Chief Strategy Officer Louis Castle said, "We are considering other options for providing a business-to-business online poker product consistent with our other online offerings for Web, social media and mobile applications."