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Cryptologic Possibly Up for Sale

By: Fabian Rictor, Sunday March 27th 2011
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A press release from Cryptologic stated that the pioneering online gaming software provider had engaged Deloitte to carry out a strategic review of its business. Deloitte is a well known international financial advisory and consulting firm. The statement, which is also available at Cryptologic's web site, further reads, "This review is at an early stage and will consider a number of strategic options, including the possibility of an offer being made for the Company or a disposal of part of the business. The board wishes to stress that there can be no certainty that any offer will be forthcoming." No time frame appears to have been indicated for the completion of this exercise.

Cryptologic was in financial trouble for quite some time. The board resorted to drastic measures in the summer of 2010. The then chief executive Brian Hadfield resigned in the light of eight-figure net losses. A major restructuring process was undertaken under the guidance of the new CEO David Gavagan. Severe cost cutting was the objective of this restructuring exercise. This was achieved largely by shifting the majority of Cryptologic's operations in Cyprus and the United Kingdom to Malta and by reducing the work force by almost 50%.

The effect of these cost cutting measures can be seen in the annual results that that report reduced losses of $20.4 million for the full year 2010 as compared to $35.5 million for 2009. More significant are the quarter wise break up within the year 2010. The last full quarter before the restructuring was initiated was Q2, which showed a loss of $12.7 million. The first full quarter under the restructuring process was Q4, which showed a loss of only $0.8 million. Hence the press release along with the annual figures indicated that Cryptologic was on its way to recovery.

However, within a few days of the release of the annual figures came the news of the strategic review. Obviously the board is of the view that even after complete restructuring the viability of Cryptologic as a going concern could be in doubt. The announcement of the strategic review further adds, "The Board will update shareholders as soon as it is appropriate to do so."

Cryptologic, along with Microgaming, pioneered the online casino industry in the mid 1990s and it is saddening to note that it might have to be sold. But it has been apparent to the industry watchers that the industry will become less fragmented and the number of players will decrease. Another software provider Wizard Gaming, though a much smaller one, went on the block last year. The sale was through an online auction. The last date for making the bids was November 29, 2010. No news on this subject was heard thereafter. Possibly if any bids were made they were below the asking price.

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