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IGT moves to acquire Swedish Internet gaming company

6 May 2011

By Howard Stutz
LAS VEGAS, Nevada -- Slot machine manufacturer International Game Technology took a step toward expansion into Internet gaming Thursday.

Reno-based IGT has offered $115 million to acquire a Swedish technology company that operates one of the world's largest online poker networks and supplies online gaming products and services to the industry.

The board of Entraction Holding AB, established in 2000 and based in Stockholm, has recommended shareholders accept the proposal, roughly $11.11 per share, which IGT will fund through available cash.

The move would give IGT a European company estimated to be the 12th largest Internet poker network in the world and the third-largest independent network, according to Entraction's legal online gaming business in Europe has more than 4 million registered gamblers in partnership with more than 60 operators.

Entraction provides Internet gaming site technology for online poker, casino, bingo and sports betting. In 2010, Entraction generated about $56 million in revenue.

IGT said the acquisition would let the company grow along with rapidly expanding Internet gaming.

"The addition of Entraction advances IGT's position in legalized interactive gaming markets," IGT Chief Executive Officer Patti Hart said in a statement. "It strengthens our interactive portfolio by adding poker, bingo, casino and sports betting."

Wall Street quickly praised the expected acquisition, saying IGT was moving ahead of other slot machine makers in a potentially huge new market. Analysts considered Internet poker alone to be a $6 billion-a-year business.

Roth Capital Partners gaming analyst Todd Eilers said all domestic equipment suppliers should be preparing for the eventual legalization and regulation of online gaming in the United States.

While IGT's deal to buy Entraction might seem expensive, Eilers said it was a strategic move that should have minimal impact on the company's near-term earnings.

"This deal is essentially a bet on the U.S. market opening up," Eilers said. "If it does, this will likely turn out to be a very good deal. We believe it's only a matter of time before the U.S. market opens up with a push at both the federal and state levels."

JP Morgan gaming analyst Joe Greff said the purchase gives IGT a leg up in the Internet gaming space.

"Given the continued evolution of online gaming internationally and (the) push for legalization in the United States, we believe the acquisition makes sense," Greff said in a research note. "It allows IGT to immediately grow its position in the market and get a solid footprint abroad, while also setting it up for potential longer-term gains domestically."

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