Empire close to $200m deal to settle PartyGaming dispute

Empire Online is close to settling its legal dispute with PartyGaming in a deal that would see PartyGaming pay Empire $200m (£114m) for terminating the "skin" arrangement under which Empire players were directed to the same platform as those of its rival's Party- Poker website.

Empire issued a statement to the market yesterday after its shares rose amid rumours that its legal spat with PartyGaming, the world's largest online poker company, was coming to an end. The internet gaming operator said: "Empire Online confirms that it is in advanced discussions regarding settlement of the outstanding litigation claim with PartyGaming and assignment of the company's related skin activities to PartyGaming."

According to insiders, PartyGaming would pay its smaller rival about $200m for its skin, the Empire Poker platform that was previously intertwined with PartyGaming until the online poker giant decided to ring-fence its own players from the Empire ones. A deal is thought to be imminent.

The Empire Poker platform is estimated to make $13m of profits in the financial year. After two profit warnings from Empire last year, a recent trading update showed there is life after PartyGaming, with strong growth at the other platform, Club Dice and Nobel Poker. Empire reiterated its guidance for 2005, saying it would make annual profits of at least $50m, with $37m coming from Club Dice and Noble Poker. Both have been signing up new members at a rate of 23 per cent a quarter.

A settlement would put an end to the litigation. Empire announced in November it would sue its rival in the Court of Gibraltar and was thought to be seeking $500m damages for lost business after PartyGaming weakened its ties with Empire. If Empire had taken its claim to the US, it could have amounted to three times that sum. As well as substantial damages, Empire has been seeking "injunctive relief" to force PartyGaming to restore the skin arrangement.

Empire, which sent punters to gambling operations run by its partners such as PartyGaming and shared revenues, was worth more than £500m when it floated in June at the height of the online poker craze. Its value crashed to £200m after the profit warnings but has since recovered to £400m. Empire was furious that in October PartyGaming moved "overnight" to end the partnership agreement. But last year a letter sent in May surfaced in which PartyGaming warned Empire's chief executive Noam Lanir that the relationship between the two gaming groups could change.

PartyGaming was tight-lipped yesterday but in a recent statement it said it would prefer an "amicable resolution" to the dispute. Empire shares rose 5 per cent to 135.5p yesterday.