PartyGaming slashes float price

PARTYGAMING, the world's biggest online poker company, has pencilled in a float price of £4.8bn for its stock market listing, lower than the £5.5bn originally mooted by City analysts.

The flotation, however, will still be the biggest on the London Stock Exchange for almost four years and will propel PartyGaming straight into the blue chip FTSE 100 share index.

'We've gone out into the market and come back with a price that is realistic,' said a spokesman. 'We believe it reflects the incredible success of the business.'

The company said it will initially offer 781.8m shares to institutional investors plus an additional 115.3m shares if the offer is oversubscribed. The indicative opening trading range for the shares is between 111p and 127p, with a mid-price of 119p.

The IPO would leave private investors holding £1.05bn of the stock with the company's founders, Anurag Dikshit, husband-and-wife team Ruth Parasol and Russ DeLeon and Vikrant Bhargava, keeping most of the remainder.

PartyGaming made an impressive profit of $350m from a turnover of $602m in 2004. The company said a share price of 119p would give an implied yield of 3.5% for 2005 compared with an average for the leisure sector of 2.8%.

The company also insisted that the 119p was a 15% discount to Sportingbet based on forecast earnings for 2006.

The global online poker market has enjoyed spectacular growth, fuelled by lottery-style jackpots offered via online tournaments. The industry was worth £318m in 2003, £750m last year and is expected to be £1.2bn in 2005. Operators take a cut from each pot, known as the rake. So the more poker hands played, the greater the profit.

The industry's success has been reflected in the share performance of Sportingbet, which floated on the junior Aim market at 120p in 2001. The shares sank to 18p in 2002 but have rallied to 279p in the past year.

However, some analysts have warned about regulatory risks. Online poker's legal status in the US, where PartyGaming's PartyPoker is a major player, is unclear. Some law-makers argue it is a game of skill and should not be legislated like other gaming. But the Justice Department sees it as a game of chance and has stymied efforts to licence internet poker, arguing it violates several federal laws, including the 1961 Wire Act.

'It seems likely that for prudent political reasons many US-based fund managers and hedge funds will reluctantly be unable to support this issue,' said David Buik of spread betting firm Cantor Index, which opened grey market trading on PartyGaming shares today.

He added: 'But the mere nature of the size of this IPO with a tag of FTSE 100 qualification will necessitate support from many other multi-national fund managers. It would also be a surprise if the general public were not very supportive.'

Cantor's grey market trading began today at 115p to 120p. Trading in PartyGaming shares is expected to begin on the London Stock Exchange on 27 June.