Sportingbet Pulls Empire Bid

Sportingbet plc said on Tuesday that it has pulled its proposal to acquire online poker group Empire Online. The announcement ends a period of speculation that started Sept. 5 when the £790 million came to light.

Empire, a publicly traded company, primarily provides marketing and player acquisition for Internet poker networks and claims to draw nearly 20 percent of industry leading PartyPoker.com' customers.

Based on that claim, acquiring Empire would have given Sportingbet and its Internet poker unit, ParadisePoker.com, a sizeable piece of Party Poker's business, but many observers felt the offer price was too high considering that Empire is not a poker room operator or technology provider. The notion that Empire was overvalued was also reflected on the London Stock Exchange, where the company's share value decreased by 20 percent as analysts dissected the company's business model.

One of Empire's primary lines of revenue, for example, is empirepoker.com--an affiliate site for PartyPoker that's operated by PartyGaming.

"All that was being offered for £800 million was about 16 personnel and a marketing war with Party and Cassava," Paul Leyland, an analyst at Seymour Pierce, explained. "Empire offers an excellent marketing team, but it does not control its own customers."

Why, then, would Sportingbet be interested in acquiring Empire?

Some observers speculate that the bid was an attempt to drive the price up for PartyGaming, which is rumored to have an interest in acquiring Empire.

Sportingbet's shares fell 17p to 326.5p, while Empire stock lost 52p to close at 202p on Tuesday following the announcement of Sportingbet's withdrawal.

Officials from both companies said the talks were never to the point at which a deal was imminent.

"Talks were only ever at an early stage and were not able to move to completion,'' Empire spokesman Ged Brumby said. He added that negotiations never reached the due-diligence stage.

Chief Executive Officer Noam Lanir said he was "very impressed'' with Sportingbet management, led by CEO Nigel Payne, and that he "now better understands the leadership positions they've achieved."

A Legal Battle Looms

While officials with Sportingbet have confirmed that takeover talks for Empire have ceased, they are not commenting on a pending copyright infringement lawsuit in the United States.

U.S.-based fantasy sports group Rotoply claims that its baseball and football lottery games, copied verbatim, showed up on Sportingbet's sites in late 2002, and the company's chief executive, Korey Gardner, says they have no intentions of backing down.

"As far as we are concerned, this is at least a multi-million dollar claim," Gardner said.

The amount of damages and compensation will depend on how much money Sportingbet has made from customers attracted to its site by the games, which it offers for free.

Meanwhile, the British media are reporting that Sportingbet could be in hot water for keeping the law suit from investors. Under Listing Authority rules, a company must inform the market if it believes a piece of litigation could be price-sensitive, and some analysts believe the case could cost Sportingbet a significant amount of money.

Sportingbet still has not told its shareholders about the legal threat. London's Mail reported that the two entities discussed a possible licensing agreement for the games, but that negotiations ended in May 2002.