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(Reuters) - Shuffle Master Inc pulled out of a deal to buy online poker company Ongame Network Ltd, a setback in the casino games maker's efforts to grab a piece of the growing internet gambling market.
The company's shares were down 6 percent at $12.58 on Wednesday on the Nasdaq.
Casino games makers have been scrambling to get into internet gambling, a business that is set to grow after the U.S. Justice Department allowed states to unilaterally legalize some forms of online gambling in 2012.
Slot machine makers International Game Technology and Bally Technologies Inc were granted online gaming licenses in Nevada, where internet gambling was legalized this year.
Shuffle Master said it dropped the acquisition as poor economic conditions in Europe would have pushed up investments and hurt profitability. It had announced the 19.5 million euro buy from Bwin.party Digital Entertainment Plc in March.
Ongame operates in regulated iGaming markets, including France, Italy, Denmark, and Spain.
"It has become evident to us that Ongame's operations post-acquisition will not achieve the near-term results we initially expected and will require a larger ongoing investment than anticipated," CEO Gavin Isaacs said in a statement on Wednesday.
Roth Capital Partners analyst Todd Eilers credited management for making a "tough decision" to back off from a deal that did not make financial sense but said the development was a blow to the company's plans to grow online.
"That was an important piece of their interactive growth strategy so now they are not as well-positioned should the U.S. markets move forward with allowing internet gaming," Eilers told Reuters.
Eilers noted that the process to legalize internet gaming was moving slowly, with initiatives in most states besides Nevada, Delaware and New Jersey not really moving forward.
"We remind investors that Shuffle Master has a very valuable portfolio of proprietary content that can still be packaged into an online table game offering," he said.
In its statement, the Las Vegas-based company said it will continue to pursue opportunities to achieve growth objectives in the online space.
Editing by Viraj Nair and Supriya Kurane