PartyGaming sets IPO as poker booms

PartyGaming sets IPO as poker booms By Reuters PartyGaming, the world's biggest online poker company, said its backers will raise up to $2.1 billion in a London share listing--less than expected as concerns over the legal status of online gaming persist. Uncertainty about the legality of online gambling in the United States--where more than 80 percent of its clients are based--continues to overhang the offer and analysts said the pricing of the shares reflects a risk discount. "It's a fantastic business and should have a lot of potential, but it has a lot of regulatory and legal hurdles to overcome to justify some of the high valuations people have talked about," said Henk Potts, investment manager at Barclays Stockbrokers. "There's a real question over the legality of providing a service to customers who could potentially be breaking the law in their own country," he added. PartyGaming is set to rank as the biggest flotation in London since technology company Dimension Data in July 2000 and will break into Britain's leading FTSE 100 share index. The offer size will match the amount raised by publisher Yell as the biggest IPO since Friends Provident in July 2001. The move underscores a dramatic global boom in online poker playing. PartyGaming, formed in 1997, 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 and its hundreds of rivals act as hosts for players--they do not take risks in the game and charge players a commission, or "rake," typically about 3 percent of the pot. Up to 70,000 people play simultaneously on PartyGaming's sites. One source familiar with the deal said the size of the sale had been trimmed, with some investors clearly wary of the regulatory risk. "Generalist fund managers have shied away from PartyGaming because of potential regulatory risk, but fund managers familiar with the gambling sector were sanguine on the issue and understand that any regulation is difficult to enforce," he said. Official trading is expected to begin on the London Stock Exchange on June 27. Dresdner Kleinwort Wasserstein is sole global coordinator for the offer. The bulk of that payout will go to the company's four founders, who will also reap a cash windfall from the offer and become paper billionaires. Online poker has surged in popularity in recent years, pulling in a wider audience than traditional casino gambling, often attracting women and younger players who may not have visited casinos. Companies hosting such sites, whose costs are relatively limited, have reaped the reward, and PartyGaming said it has an estimated 55 percent share of the online poker market. It said its revenue was $222 million in the first quarter of this year, up 93 percent from a year earlier. Operating profit jumped 81 percent from a year earlier to $128 million. Story Copyright © 2005 Reuters Limited. All rights reserved.