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Responding to press speculation in a market missive, £368 million online gaming concern 888.com has confirmed talks with third parties, following the suspension of its US activities, though, as ever, there is no certainty of an offer forthcoming.

The statement prompted Numis analysts Richard Carter and Simon French to write that they ‘view 888.com as the way to play the online gaming sector’, citing the group’s robust balance sheet, it’s sizeable non-US business (around 48 per cent of its net gaming revenues arose from non-US sources in the first half of ‘06) and also its attractions as a bid target.

‘In our view, a deal between PartyGaming and 888.com is likely to be a takeover rather than a merger given PartyGaming’s market capitalisation is more than three times bigger than 888.com,’ says the duo, who estimate that if a 20 per cent premium were offered to 888.com’s current 109p price, PartyGaming’s earnings might be enhanced by 22 per cent in year one. In terms of synergies, the broker believes that $27.5 million of costs could be taken out in the first year and $45 million might be extracted in year two. Furthermore, cross- selling of sports betting into the 888.com customer base could generate EBIT of $4 million in year one and $7.5 million in year two.

Numis currently has a ‘sell’ recommendation out on PartyGaming, although that could change if the group were to acquire 888.com, where ‘we would likely upgrade our target price and recommendation’.

PartyGaming	LSE	£455.24m	112.50p	9.00p
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