Ladbrokes linked to bid for online gaming firm 888

The online gaming company 888 Holdings yesterday initiated a potential bid battle by admitting it was in takeover talks.

The group said it had held "various preliminary discussions with third parties following the suspension of its US activities" in a stock exchange announcement yesterday morning.

President George Bush has signed a bill banning credit card companies from dealing with online gaming groups. That forced the London-listed internet gambling companies to either sell or close US-facing businesses.

Yesterday's announcement sparked a sharp rise in 888's shares, which hit a high of 118p. However, they lost ground later in the day, finishing at 108p.

The company declined to name the firms it has been talking to, although over the weekend it emerged that executives from PartyGaming have had several meetings with 888. The two companies share the same building in Gibraltar. Further discussions are scheduled for when Party's chief executive Mitch Garber returns from holiday.

Any deal would require the consent of the Shaked brothers - the Israelis who hold a controlling stake in 888. Mr Garber is said to be on holiday in Israel.

However, City sources noted that 888's statement indicated that it had been talking to other possible bidders. Ladbrokes is widely believed to be interested, having made no secret of its desire to expand its online gaming business - and the company would find it easier to table a cash bid for 888.

However, Britain's biggest bookie would find it difficult to match the sort of cost savings PartyGaming would generate.

Analysts at Numis Securities believe a combination of 888 and PartyGaming could save $27.1m (£14.2m) in the first year, and $45m in year two.

They also predicted that Party could generate earnings of $4m by selling its sport betting services to 888 clients, with a further $7.5m in the second year.

"This should not come as any surprise to the market. Both 888.com and PartyGaming have frequently been quoted over the past few weeks as saying they are talking to third parties," the analysts said.

Despite its interest in 888, PartyGaming's shares also finished unchanged at 30p.

Ladbrokes will today host politicians from 30 countries at an online gaming summit at Ascot Racecourse. Spokesman Ciaran O'Brien said the US attempt to ban online gaming was "doomed to failure" and that American gamblers would be forced to deal with sites with "low standards" of player protection.

He praised Britain's approach in permitting the practice while enforcing "high standards" of regulation and consumer protection for players.

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