Partygaming PLC - Internet-Spieleanbieter

By Matt Scuffham and Boris Groendahl

LONDON/VIENNA, July 29 (Reuters) - Britain's PartyGaming and Austria's bwin unveiled a merger on Thursday to create a $3.3-billion online gaming business positioned to profit from deregulation of a lucrative U.S. market.

The deal to create the world's biggest listed Internet gambling firm could kickstart a flurry of M&A activity in a fragmented sector that is seen as ripe for consolidation because of opportunities created by the relaxation of online gambling laws around the world.

Moves in the United States to overturn 2006 legislation that effectively outlawed the industry gained momentum on Wednesday when the House Financial Services Committee voted to approve a bill introduced by Committee Chairman Rep. Barney Frank which would legalise and regulate Internet gambling in the country.

'We're very excited about the U.S. opportunity,' PartyGaming Chief Executive Jim Ryan told reporters on a conference call.

'It's tough to quantify it until we actually see the form of legislation, but there was a very positive step made by Mr Frank yesterday, and that's in addition to a number of positive steps that have occurred at a Federal and State level over the course of this year,' he said.

Ryan added that both companies had been 'working aggressively in preparing strategies and tactical plans to get ready for U.S. re-entry'.

PartyGaming agreed a $105 million settlement with U.S. authorities last year which protected it from being prosecuted over its past activities there and cleared the way for it to go back there if the industry is legalised.

It had seen hundreds of millions of pounds knocked off its share price in 2006 following the crackdown in the United States, which had accounted for around three-quarters of its profits.

REVERSE TAKEOVER

Under the terms of the deal, classified as a reverse takeover of bwin by PartyGaming under UK rules, bwin shareholders will get 12.23 new PartyGaming shares for each bwin share, giving them 51.6 percent of the new company. Bwin shares will delist in Vienna following completion of the merger.

Based on Wednesday's closing prices, the offer of 12.23 PartyGaming shares for every bwin share is a 6-percent premium to the current value of bwin's shares.

Shares in PartyGaming surged as much as 30 percent, while bwin added as much as 28 percent, hitting their highest levels since March. PartyGaming was up 21 percent at 311 pence at 1450 GMT while bwin was 21 percent higher at 43.12 euros.

'We think it's a phenomenal deal strategically,' said Davy analyst David Jennings. 'I think that as a defensive measure other companies will have to question where they are in the sector because you're now competing against an 800 lb gorilla.'

'So it could spark a round of consolidation that has been badly needed,' he said.

The new group will be listed on the London Stock Exchange and jointly run by current chief executives of the two companies, Ryan and Norbert Teufelberger.

The deal is a coup for Teufelberger, a former Junior Wimbledon quarter finalist who in 2006 was arrested for alleged advertising of illegal gambling during a press conference in France. The charges were later dropped.

Teufelberger attempted to take bwin into the U.S. poker market in 2006 when he oversaw the purchase of Swedish poker operator Ongame in 2006 for almost half a billion euros. But the plan was scuppered when the U.S. effectively outlawed online gambling later in 2006 and Bwin wrote off the entire investment in the same year.

For Ryan, a Canadian, it represents the culmination of over 20 years' work in the technology and gaming sectors. The father of three, who gained a first-class business degree from Brock University, Ontario, is an Internet gambling veteran, having floated interactive gaming software firm Excapsa on AIM and been CEO of online games network operator St Minver.

Based on Wednesday's closing share prices, PartyGaming had a market value of 1.050 billion pounds ($1.64 billion), while bwin was worth 1.281 billion euros ($1.67 billion).

The combined group is targeting annual savings of 55 million euros from the deal.

Teufelberger said the two parties had been in discussions over commercial opportunities for over a year and had talked specifically about a merger for a few months.

PartyGaming was advised by Deutsche Bank while bwin enlisted the help of boutique advisory McQueen.