Proposed settlement of litigation with PartyGaming Plc (“PartyGaming”) and assignment of related “skin” activities subject to Shareholder approval
Highlights
Noam Lanir, Chief Executive of Empire Online, said today:
“This transaction removes the uncertainty of litigation between Empire Online and PartyGaming. It puts the Company on a stronger footing and will enable management to focus on growing its continuing businesses. We will consider carefully how to use the net proceeds from this sale to the maximum benefit of shareholders.”
Enquiries:
Empire Online Limited | +357 (2) 5 847 700 |
Noam Lanir, Chief Executive Officer | |
Andrew Burnett | |
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Numis Securities Limited | +44 (0) 207 776 1500 |
Jag Mundi, Head of Corporate Finance | |
Lee Aston, Director, Corporate Finance | |
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Citigate Dewe Rogerson | +44 (0) 20 7638 9571 |
Simon Rigby | |
Sarah Gestetner | |
Proposed settlement of litigation with PartyGaming and assignment of related “skin” activities subject to Shareholder approval
Introduction
The Company announces that it has today entered into an agreement with PartyGaming to settle all outstanding litigation between them and effectively to sell the business and assets of its PartyGaming “skin” activities (i.e. operations designed to direct players to one of PartyGaming’s gaming platforms) to PartyGaming in return for a cash payment of US$250 million, payable on completion.
Under the terms of this agreement the existing contractual arrangements with PartyGaming will be terminated and Empire Online will assign to PartyGaming its interests in certain domain names related to the PartyGaming “skin” activities including “empirepoker.com” and “aceclub.com”.
The agreement is conditional upon the approval of Empire Online shareholders by way of an ordinary resolution.
There is no requirement either under BVI law or under the AIM Rules to obtain shareholder approval for a disposal of this size, but the Directors consider that, given the significance of the transaction and settlement and for the sake of good governance and practice, shareholders should be appraised of the Proposals and be given the opportunity to vote on the Proposals.
Background to the Proposals
Empire Online had a close working relationship with PartyGaming from 2002, when it commenced marketing PartyGaming’s online casino brands. In 2003, Empire Poker was launched under a white label or “skin” agreement with PartyGaming and over time became PartyGaming’s most important poker skin, providing approximately 70 per cent. of all players provided under its skin agreements.
Following the acquisition of ClubDice and Noble Poker in August 2005, an increasing proportion of new player sign ups and revenue has been derived from activities not related to PartyGaming and the Directors confirm that in the year ended 31 December 2006 such activities should contribute approximately $37m of net profit.
Activities related to PartyGaming have remained a source of revenue for Empire Online although revenues have declined materially following the launch by PartyGaming of a new operating platform on 8 October 2005 which moved PartyGaming poker players to a different platform from that of PartyGaming’s skins.
Following the launch of this new platform, Empire Online was approached by PartyGaming in relation to an offer by PartyGaming for the entire issued and to be issued share capital of Empire Online. Following a breakdown of these talks, Empire Online announced that the Directors intended to institute and vigorously pursue legal proceedings against PartyGaming in relation to the launch of PartyGaming’s new platform.
During this process, the directors of PartyGaming and the Directors entered into mediation, from which the Proposals described below have resulted.
The Proposals
The principal terms of the Proposals are as follows:
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Both sides to terminate the various “skin” agreements between them.
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Empire Online to assign to PartyGaming all rights, title and interest in certain domain names and trade marks associated with those “skin” agreements (e.g. empirepoker.com and aceclub.com).
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All litigation and other related proceedings brought by the Company against PartyGaming are to be stayed and all claims waived.
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PartyGaming to pay to Empire Online $250 million in cash on completion in consideration for the settlement of the litigation and the assignment of these assets.
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PartyGaming also to pay outstanding commissions owing to the Group under the relevant “skin” agreements.
This agreement is subject to approval of Empire Online Shareholders at a Shareholders’ meeting. It is not subject to any other conditions. From execution of the Sale Agreement, it has been agreed that PartyGaming shall effectively operate these skin agreements on behalf of the Group pending completion of the transaction. Any commissions earned during the period shall be for PartyGaming’s account when completion occurs.
Assets included in the Disposal are the domain names empirepoker.com and aceclub.com, and the brand names “Empire Poker” and “Ace Club”. These brand names and domain names are used by Empire Online to direct online poker and casino players to PartyGaming’s websites, creating net gaming revenue for the Company.
In the year ended 31 December 2005, the gross profit before administrative expenses attributable to the assets being sold was approximately $38.7 million. In the quarter ended 31 December 2005 the assets contributed gross profit before administrative expenses of $5.0 million. The balance sheet value of the net assets pursuant to the Proposals was less than $0.1 million as at 31 December 2005.
Rationale for the Proposals
The Directors believe that approval of the Proposals will crystallise the value of the assets being assigned for Shareholders whilst also removing the uncertainty of litigation between Empire Online and PartyGaming. The Empire Online Board considers that, whilst it has always been confident of a successful outcome, the litigation process was likely to have been protracted. The Proposals will, in the view of the Directors, put the Company on a stronger footing and also enable management to focus on growing the continuing business, and to make suitable acquisitions should such opportunities occur.
Principal brand/domain names continuing with the Group include Noble Poker, Club Dice Casino, Monaco Gold Casino, Carnival Casino, YouBingo, 888casino.com and 65.com.
Use of Proceeds
The Directors will consider the most appropriate ways in which to use the net proceeds of the US$250 million generated through the Proposals to maximise value for Shareholders. Options available to the Directors include distributions to Shareholders as well as potential complementary acquisitions. Assuming completion of the Disposal, the Directors will inform Shareholders of any decision or proposal in relation to use of these proceeds as and when appropriate.
Extraordinary General Meeting
An EGM to approve the Proposals will be convened, and notice of this meeting will be set out in a circular expected to be posted to shareholders, later today.
The resolution to approve the Proposals will be an ordinary resolution, which means that it will require a simple majority of those persons who, being eligible to do so, vote (in person or by proxy) at the EGM in favour of the resolution.
Authorities to vote in favour of the Proposals
Shareholders (including Directors) have given authorities to PartyGaming to vote in favour of the Proposals in respect of, in aggregate, 163,999,358 Ordinary Shares, representing approximately 56.0 per cent. of the issued share capital of the Company.
Recommendation
The Directors believe that the Proposals are in the best interests of Shareholders as a whole and unanimously recommend that Shareholders vote in favour of the Proposals at the EGM, as those Directors who hold Ordinary Shares (either directly or through depositary interests) intend to do in respect of their own beneficial holdings which amount, in aggregate, to 62,971,837 Ordinary Shares, representing approximately 21.5 per cent. of the issued share capital of the Company.
DEFINITIONS
In this announcement expressions have the following meanings unless the context requires otherwise:
"AIM" the AIM market operated by the London Stock Exchange plc
"AIM Rules" the rules of AIM companies and their directors, nominated advisers and brokers contained in the document entitled the "AIM Rules" published by the London Stock Exchange plc
"BVI" the British Virgin Islands
"Company" or "Empire Online" Empire Online Limited, a company incorporated in the BVI with registered number 475668
"Directors" or the "Board" the directors of Empire Online
"Disposal" the proposed assignment of certain assets currently owned by the Group pursuant to the Sale Agreement
"EGM" or "Extraordinary General the Extraordinary General Meeting of the Company to be
Meeting" held on 6 March 2006, convened to approve the Proposals
"Group" Empire Online and its subsidiaries and subsidiary undertakings
"Ordinary Shares" or "Shares" ordinary shares in the share capital of the Company, each having no par value
“PartyGaming” PartyGaming Plc, a company incorporated in Gibraltar with registered number 91225 including, where appropriate, its subsidiaries
"Proposals" together the proposed assignment of certain of the Group's assets to, and the termination of the skin agreements with, PartyGaming pursuant to the Sale Agreement and the settlement of the litigation with PartyGaming
"Sale Agreement" the conditional agreement dated 14 February 2006 between (1) WPC Productions Limited (2) PartyGaming (3) Electraworks Limited and (4) the Company
"Shareholders" holders of Ordinary Shares or (where the context permits) depositary interests representing Ordinary Shares
