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PartyGaming shows its hand

Andrew Oxlade|This Is Money
13 April 2012

SHARES in online casino company PartyGaming surged 9% to 126p just minutes after listing on the London Stock Exchange today. The flotation raised more money than any UK IPO for almost two years.

Shortly after trading began, PartyGaming shares were trading at 126p, after the company sold shares at 116p - the lower end of its 111-127p indicated price range. They had settled down to 123½p by mid-morning.

PartyGaming's owners will raise £1.04bn from the sale of shares, the largest amount raised from an IPO since publisher Yell in July 2003. The share price rally lifted its market capitalisation to just over £5bn.

PartyGaming was valued higher than many British household names such as British Airways and chemicals group ICI, giving it entry to Britain's FTSE 100 index of leading shares. The total size of the company, at nearly £5bn, makes it the biggest flotation since Dimension Data came to the market at £6bn in July 2000.

'The listing will reinforce the group's position as one of the world's leading online gaming companies and enhance the group's profile as we seek to expand internationally,' said Richard Segal, chief executive.

The pricing was just below the midpoint of PartyGaming's indicative range of 111p to 127p. PartyGaming, formed in 1997, runs three main brands - PartyPoker, StarluckCasino and PartyBingo - and now has more than half the global online poker market.

Poker has become a big money-spinner for internet gambling companies, which estimate the size of the world online gambling market at between $7bn and $12bn per year and say it is growing by about 20% per year.

The Gibraltar-licensed group now reaps a profit of almost $1,000 every minute as it pulls in revenue of $100,000 every hour of the day.

The company is offering just over 781.6 million shares but is expected to release a further 115.2m during the week after demand for the offering was triple the amount of equity available when the books closed on Friday night.

The IPO, which was open to financial institutions only, was priced lower than original estimates. City commentators have blamed fears over whether US authorities will crackdown on offshore online gaming - possibly by restricting credit card payments. There were also concerns that fund managers would find their rules, particularly in the US, barred investments in gambling companies.

The banks which led the underwriting of the flotation, principally Dresdner Kleinwort Wasserstein, are in line for £36m with appetite for the share issue, which should trigger a series of 'incentive fees'.

The banks will receive 2.5% basic commission but can earn a further 'non discretionary incentive fee' of up to 0.8% if 'criteria as to valuation, timing and after-market performance' are met. There is also a 'discretionary incentive fee' of 0.5% that can be paid if the sellers so decide. That takes the total potential underwriting fee to 3.8% of the issue.

Second-tier banks include Bayerische Hypo-und Vereinsbank, Enskilda Securities, ING and Mediobanca. About £11.5m will be split by lawyers Freshfields Bruckhaus Deringer, acting for the company in England, Hassan in Gibraltar and Linklaters for the banks, and accountants BDO Stoy Hayward.

Bright spot in a grey year

TODAY'S flotation of PartyGaming propels it to around 54th in the FTSE 100, making the internet gambling site larger by market value than hotels group Hilton, owner of the Ladbrokes betting shops chain, and even British Airways and retailers Boots and Next, writes the Evening Standard.

But the float is a bright point in an otherwise grey year for initial public offerings on the main London market.

Research from KPMG shows that only seven companies have joined the official list this year, raising a combined £569m, a fall of 58% by value compared with the first half of last year and less than half the amount raised on the junior Aim, which had 148 new entrants.

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