Worldlink Grp Regulatory News (WGP)

25 Oct 2005 08:00

World Gaming PLC25 October 2005 PRESS RELEASE 25 OCTOBER 2005 WORLD GAMING PLC ("World Gaming" or "the Company") Acquisition and suspension of trading on AIM The Directors of World Gaming ("the Directors") are pleased to announce that theWorld Gaming Group has entered into a conditional purchase agreement (describedbelow) to acquire certain of the businesses and assets of Real Entertainment Ltd("Real") and the entire issued share capital of DNI Holdings Ltd ("DNI")(together the "SPORTSBETTING.COM GROUP"). The SPORTSBETTING.COM GROUP iscurrently the World Gaming Group's largest licensee. The comprehensive combinedbusinesses of the two groups will further leverage the World Gaming Group'sexisting software, infrastructure assets and experience. The SPORTSBETTING.COM GROUP has established a number of popular Internet-basedgaming brands since its inception in September 1999, including its flagshipbrand www.sportsbetting.com and its other primary sites www.racebook.com andwww.win4real.com. The SPORTSBETTING.COM GROUP offers a full suite of sportsbetting, horseracing, casino, and poker products on each of its sites as part ofthe gaming software which it licenses and sublicenses from the World GamingGroup. The acquisition is conditional upon the World Gaming Group securing the requireddebt and equity financing as well as obtaining the consent of World Gaming'sshareholders at the Annual General Meeting ("AGM"). The conditional purchaseagreement provides that the vendors may terminate the agreement if theseconditions are not met by 14 December 2005, unless extended by mutual agreementof World Gaming and the vendors. World Gaming will mail its shareholders a notice for the AGM together with acircular containing comprehensive details of both groups and the transaction ascontemplated. This will be sent together with proxy materials not less than 21days prior to the AGM, which the Directors expect will be held in late November2005. The transaction constitutes a Reverse Takeover for the purpose of the AIM rulesand hence in accordance with these rules World Gaming has requested that itsshares be suspended from trading on AIM until the AGM. World Gaming will applyfor the enlarged issued share capital (which includes the existing shares,placing shares and shares issued to the vendors of the SPORTSBETTING.COM GROUPas part of the acquisition) to be admitted to trading on AIM subject to theconditions being satisfied. Dealings on AIM in the enlarged issued share capitalshall commence as soon as practicable thereafter. If the conditions of theacquisition are not met, dealings in the existing ordinary shares on AIM willcontinue as soon as practicable. TERMS OF THE TRANSACTION The World Gaming Group will acquire certain assets of Real and the entire sharecapital of DNI. The principal terms, as set out below, highlight the keyelements of the offer for the acquisition of the SPORTSBETTING.COM GROUP, whichis expected to complete, subject to completion of the required equity and debtfinancing and the passing of the resolutions at the AGM, having an effectivedate of 1 October 2005 ("the Effective Date"). The Effective Date is that dateat which all of the business and assets of the SPORTSBETTING.COM GROUP aredeemed to have been acquired, subject to completion of the acquisition. The payments are structured as follows: • The consideration paid will be equal to six times the Sportsbetting.com Group's Profit Before Tax ("PBT") as defined under International Accounting Principles for the calendar year of 2005, up to a maximum total consideration of $96m, which shall be satisfied 75% in cash and 25% by the issue and allotment of Consideration Shares; • The consideration shall be $96m provided that the PBT is not less than $15m. To the extent that the PBT is below $15m, the consideration shall be six times the 2005 PBT, subject to a minimum consideration of $72m (see the example detailed below). Any reductions shall come 75 per cent from cash and 25 per cent from equity; • World Gaming proposes to pay the consideration as follows: Description Due $m Example First PaymentCash Only On completion 54.0 Second Payment - 6 x Full Year 2005PBT less First Payment (to amaximum of $16m) less holdback forThird Payment Cash January 7, 2006 10.8Shares January 7, 2006 21.6 Third Payment - 10 per centHoldback of Total Consideration Cash October 7, 2006 7.2Shares October 7, 2006 2.4 96.0 The second and third payments will be paid into escrow during the fourth quarterof 2005 and the first quarter of 2006, pending verification of the 2005 PBT. • The third payment shall become payable seven days after the first anniversary of the Effective Date subject to no warranties having been breached by the vendors and any adjustments having been required for calendar 2005 full year audit. In the event of a dispute, both parties will agree on an independent expert to resolve the disputed portion in a manner binding on both parties. The terms of the acquisition require that the vendors shareholding in WorldGaming shall not exceed 29.9 per cent at any time. The Consideration Sharesissued to the vendors will be at the same price as the equity fund-raising whichis expected to be carried out in conjunction with the acquisition, and will besubject to lock-up arrangements. In the event that the conditions upon which the transaction is conditional arenot met by 14 December 2005 or, any later date mutually agreed, World Gamingshall be liable to pay the vendors costs in relation to the transaction notexceeding £500,000. BACKGROUND TO THE TRANSACTION Following the initial admission to AIM in May 2005, the World Gaming Group hascontinued to implement its strategy of growing revenues within the existinglicensing business. In addition, following the World Gaming Group's commitmentto pursue new licensing opportunities, World Gaming has announced a number ofnew licensing deals, which it believes will provide growth in revenue in futureperiods. The World Gaming Group is committed to remain a key licensor of gamingsoftware within this sector. As the gaming software, the hosting facilities and key supplier relationshipsalready exist within the World Gaming Group, it is believed that entering thebusiness of operations, as well as being a key supplier to the sector willprovide greater utilization of the World Gaming Group's assets. The SPORTSBETTING.COM GROUP makes use of an extensive list of URLs and a numberof Internet based gaming brands (including www.sportsbetting.com,www.racebook.com and www.win4real.com) which, together with associated trademarks, form part of the acquired assets. The SPORTSBETTING.COM GROUP offers afull suite of sports betting, horseracing, casino, and poker products on each ofits sites as part of the gaming software, which it licenses and sublicenses fromthe World Gaming Group. The SPORTSBETTING.COM GROUP turnover has grown significantly since its inceptionand industry estimates predict strong growth in the sector to continue. TheDirectors believe that the SPORTSBETTING.COM GROUP's ability to offer a singleplatform on which users can place bets across sports, casino, horse racing andpoker together with strong branding and marketing expertise has positioned theSPORTSBETTING.COM GROUP to participate vigorously in this growth. The Directorsfurther believe that the SPORTSBETTING.COM GROUP's marketing focus on customeracquisition and retention strategies has further added to the value of thebusiness through building a profitable database of recreational players. TheDirectors believe that the SPORTSBETTING.COM GROUP's URLs have been integral toits success. The SPORTSBETTING.COM GROUP is currently the World Gaming Group'slargest licensee and all of its operations other than marketing are carried out,managed, or sub-licensed by the World Gaming Group, therefore the World GamingGroup believes that the combination of the businesses is expected to berelatively straightforward. The key strengths of the World Gaming Group, which were outlined at the time ofinitial admission to AIM in May 2005, are:• experienced and respected management team;• cash generative, profitable and growing;• established, widely used and highly reliable gaming software andinfrastructure;• excellent record for processing high volumes of transactions;• flexible product offering for licensees;• track record as provider to the industry leader;• low cost and short timescale set up for new licensees; and• expansion opportunities including potential acquisitions.The World Gaming Group believes that these key strengths will be enhancedsignificantly through the acquisition. REASONS FOR THE ACQUISITION The core of the current management team was established in 2003 with theimmediate objective to stabilise the Group's operations and achieveprofitability within the gaming software licensing business. Having met theseimmediate objectives, the Directors began to focus on leveraging key assetsincluding the gaming software itself, the intellectual property and theassociated infrastructure. Each of these establishes a strong platform toachieving the objective of moving up the industry value chain by takingownership of the underlying customer database. This will allow the World GamingGroup to earn all of the revenue, or net win, on each gambling transaction asopposed to a percentage of revenue under existing licensing models. INFORMATION ON THE SPORTSBETTING GROUP The SPORTSBETTING.COM GROUP has established a number of key Internet basedgaming brands since its inception in September 1999. Its flagship domain iswww.sportsbetting.com and its other primary sites are www.racebook.com andwww.win4real.com. The SPORTSBETTING.COM GROUP offers a full suite of sportsbetting, horseracing, casino, and poker products on each of its sites as part ofthe gaming software, which it licenses, and sublicenses from the World GamingGroup. The SPORTSBETTING.COM GROUP also includes certain other domain names and thecustomer database. World Gaming provides software and associated infrastructurerequirements from its gaming servers in its secure leased facility in Antigua.In addition, World Gaming facilitates critical third party relationships fortransaction processing, customer service and risk management. At present onlythe marketing and hosting of the front end websites used for marketing isoutside the control of World Gaming. As part of the Acquisition, marketingactivity that has been carried out by and on behalf of the Sportsbetting.comGroup since its inception will be performed by the World Gaming Group. Theperformance of these activities will be assisted through key marketingrelationships that were in existence prior to the proposed Acquisition andpreviously used by the vendors. The SPORTSBETTING.COM GROUP and its associated assets have grown significantlyin the six-year period since its inception. The Directors believe that theSPORTSBETTING.COM GROUP's URLs, particularly www.sportsbetting.com, have beenintegral to its success. Another key driver of growth has been the affiliateprograms, which have been run by the SPORTSBETTING.COM GROUP whereby otherwebsites drive traffic to its own websites in return for a portion of therevenues derived from those customers. The SPORTSBETTING.COM GROUP also makesextensive use of on-line and off-line advertising as well as using competitions,print advertising, physical mail-outs, advertising at events and customerloyalty programs. The Directors believe that the growth of the business in thisperiod demonstrates the success of the marketing techniques employed andscalability of the SPORTSBETTING.COM GROUP's operating model. With the strength of the SPORTSBETTING.COM GROUP's brands, the Directors believethere is an opportunity to target other geographic regions, which will increaserevenues, diversify risk and reduce the seasonality, which exists due to thesports seasons in the United States. The addition of non-event reliant productssuch as poker will further mitigate seasonal demand. The SPORTSBETTING.COM GROUP experiences competition from a number of sources,however, the Directors believe that the Internet Gaming market is fragmented andis growing sufficiently quickly that no individual business represents a currentand material commercial threat. As the market matures, however, the Directorsbelieve there will be increased competitive pressures and consolidation withinthe industry. The Directors believe that the Enlarged Group has sufficientlystrong operations and management to operate successfully in this environment andto take advantage of consolidation and the opportunities presented. SUSPENSION OF SHARES IN THE U.S. Once the AIM trading suspension becomes effective, World Gaming's AmericanDepositary Receipts ("ADRs") - which trade on the Over the Counter BulletinBoard - may become subject to a five-day trading halt initiated by the NASDpursuant to Rule 6545. World Gaming understands that any such NASD trading haltwould be subject to a five-day maximum duration. World Gaming furtherunderstands that if the NASD were to require a full five-day trading halt,trading in the ADRs could not resume until such time as World Gaming's marketmakers were able to comply with applicable NASD and the U.S. Securities andExchange Commission rules which apply once a security has been subject to such atrading halt. Commenting on the proposed acquisition, Daniel Moran, Chief Executive of WorldGaming, said: "The acquisition represents the World Gaming Group's first step into Internetgaming operations in its core markets of sports betting, horse racing, casinoand poker. Our existing business and assets combined with those of theSPORTSBETTING.COM GROUP represent a robust platform from which we can continuewith our strategy to grow and become a leading consolidator in the industry. Webelieve that this transaction better positions the Group to target globalmarkets which will increase revenues and diversify risk". Enquiries: World Gaming plc Tel. +1 888 883 0833Daniel Moran, Chief Executive Daniel Stewart & Company Tel. 020 7776 6550Ruari McGirr Bishopsgate Communications Limited Tel: 020 7430 1600Maxine BarnesDominic Barretto U.S. SECURITIES ACT NOTICE The ordinary shares to be issued in connection with the proposed transaction orthe related equity offering have not been and will not be registered under theU.S. Securities Act of 1933, as amended (the "Securities Act"), and may not beoffered or sold in the United States or to, or for the account or benefit of, aU.S. person (as such term is defined in Regulations S under the Securities Act)absent registration or an applicable exemption from registration under theSecurities Act. ABOUT THE WORLD GAMING GROUPWorld Gaming is a UK based holding company whose subsidiaries participate inI-gaming software and e-business. The World Gaming Group is an internationaldeveloper, licensor, and provider of online gaming products, including casino,sportsbook, and pari-mutuel betting. For more information about the World GamingGroup, visit its main website at www.worldgamingplc.co.uk.Interactive Systems Inc., a subsidiary of World Gaming is incorporated andoperating out of Antigua, licenses its gaming software to third parties for aninitial licensing fee and monthly royalties. Alea Software Inc., inparticipation with the World Gaming Group develops gaming software and webpages. This information is provided by RNS The company news service from the London Stock Exchange