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UPDATE 4-William Hill, Amaya drop short-lived gambling merger talks

* Talks abandoned less than two weeks after announcement

* Sector consolidating as more gamblers go online

* European rivals have already joined forces

* Amaya FY revenue forecast below market expectations

* Amaya shares drop 8.3 percent (Adds share move, Amaya spokesman comment)

By Kate Holton and Simon Jessop

LONDON/TORONTO, Oct 18 William Hill and Canadian online gambling company Amaya Inc have abandoned merger talks, leaving the British bookmaker struggling to find a partner in a fast consolidating industry.

Amaya, operator of the PokerStars website, and William Hill, one of the best-known British gambling brands, said earlier this month they were in talks about a merger of equals but the deal was thrown into doubt days later when a leading investor in William Hill said it would oppose the plan.

The Canadian company said it had decided it could best deliver shareholder value by remaining an independent company, while William Hill said it decided to walk away after canvassing its biggest investors. Amaya shares tumbled 8.3 percent.

William Hill investor Parvus Asset Management, which came out against the Amaya deal last week, welcomed the news.

"We're pleased that the board has decided to cancel the talks with Amaya, and, from our perspective, we're looking forward to working constructively with the board with regard to creating shareholder value for William Hill owners," Parvus co-founder Mads Gensmann said.

William Hill is looking increasingly isolated after European rivals Paddy Power and Betfair joined forces, while Ladbrokes agreed to unite with unlisted Gala Coral.

Betting companies are facing tighter regulation and higher taxes in countries such as Britain and need to adapt to an environment in which younger and more tech-savvy gamblers are increasingly betting online or via smartphone.

Amaya, which had been evaluating strategic alternatives since earlier this year, said it has ended that process. It had also received interest from GVC Holdings and private equity firms, sources have told Reuters.

"It was a pretty intensive process, and we had a number of interested parties at various stages and in various depths," Amaya spokesman Eric Hollreiser said.

"It was the conversations with William Hill that progressed the furthest," he said. "We thought at the time, and in fact still think at this point, that there's a lot of strategic and industrial logic to the potential pairing."

LOOKING FOR ALTERNATIVES

William Hill appears to have lost momentum after long-serving Chief Executive Ralph Topping left the company two years ago. His successor James Henderson departed in July after the board said he was failing to deliver enough growth in online and international gambling.

The company subsequently rejected a joint takeover approach from smaller online rival 888 and casino and bingo hall operator Rank Group in August.

That turned the tables on William Hill which had made a 720 million pound ($895 million) bid for 888 last year.

In a statement on Tuesday, William Hill said it was focusing on the priorities set out by interim CEO Philip Bowcock: online, technology, efficiencies and international.

It said the company would "continue to consider strategic alternatives where they have the potential to create shareholder value."

Its shares added 1.5 percent to 309.6 pence, valuing the company at around 2.65 billion pounds.

Amaya said it had been informed by its former chief executive, David Baazov, that he remained interested in buying the company but that the firm had not received an offer capable of resulting in a transaction.

Amaya said in February it had received a non-binding proposal from Baazov to take the company private, but the formal bid never came.

Amaya also said on Tuesday it expects to report full-year revenues of between $1.13 and $1.16 billion, lower than the average forecast of $1.17 billion, according to Thomson Reuters I/B/E/S. The company expects earnings to be between $1.71 and $1.82 per share, compared with an average forecast of $1.72. ($1 = 0.8042 pounds)

(Additional reporting by Matt Scuffham, John Tilak and Alastair Sharp in Toronto; Editing by Keith Weir, Frances Kerry and Meredith Mazzilli)

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