PartyGaming's IPO May Value Company at $9.2 Billion

June 15 (Bloomberg) -- PartyGaming Plc, the world's largest online poker operator, will be valued at as much as 5.08 billion pounds ($9.2 billion) when it sells stock in an initial public offering this month to capitalize on the growth of Internet gaming.

The Gibraltar-based company's founders plan to raise as much as 1.1 billion pounds by selling 20.6 percent of the shares in London for 111 pence to 127 pence each, PartyGaming said today in a statement. The middle of the price range values the company at about 25 times its 2004 net income, less than U.S. Internet stocks such as search engine Google Inc.

PartyGaming controls about 55 percent of the global Internet poker market, which U.K. rival Sportingbet Plc values at $1.5 billion. Internet gaming may grow by an average of 22 percent a year by 2008, British company Leisure & Gaming Plc predicts. PartyGaming's lower market value partly reflects investors' concern over the legality of Internet gaming in the U.S., where PartyGaming makes about 90 percent of its money.

``A potential and actual cloud is the situation with respect to legality,'' said Robert Talbut, chief investment officer at Royal London Asset Management Ltd., which oversees the equivalent of $43 billion in assets. ``The sustainability of the company's legal and financial position will be something shareholders will want to very carefully weigh up before they decide to become involved.''

`Murky Area'

According to the 1961 Wire Act, it's illegal to gamble on sporting events over state lines using telephone lines. The horse- racing industry is exempt.

It isn't clear whether the law applies to online wagering, said Sebastian Sinclair, president of Christensen Capital Advisors, a consulting firm to the U.S. casino industry.

``It's a very murky area,'' Sinclair said in an interview. ``There are no clear and definitive answers.''

Proposed legislation in the U.S. to prevent banks and credit- card companies from allowing their customers to use accounts for online gambling is likely to fail, according to PartyGaming.

The success of the offer ``will depend on how management can allay potential investors' fears,'' said Brian Gallagher, who oversees funds worth the equivalent of $1.3 billion at Gartmore Investment Management in London. ``That is the critical thing.''

The valuation for PartyGaming compares with estimated price- to-earnings ratios of 89 for Google and 47 for EBay, according to data compiled by Bloomberg. Sportingbet Plc, the London-based owner of Paradise Poker, the No. 3 online poker operator, trades at about 21 times estimated earnings, the data show.

Booming Market

PartyGaming's owners are seeking to take advantage of the growth of the online poker market, which according to rival Sportingbet Plc has more than tripled in size to $1.5 billion over two years. PartyGaming says it has 55 percent of the market.

Empire Online Ltd., which helps online poker and casino Web sites win customers, said today that it raised 123.5 million pounds in an initial offering that valued the company at 512 million pounds. Empire shares gained as much as 15 pence, or 8.6 percent, to 190 pence on their first day of trading in London and were at 177.5 pence as of 2:18 p.m. local time.

Should PartyGaming's owners raise the maximum 1.1 billion pounds from the offer, it would be the biggest London IPO since Yell Group Plc raised 1.23 billion pounds in 2003, according to Bloomberg data. Sale manager Dresdner Kleinwort Wasserstein will offer 781.8 million shares and may sell 115.3 million more by exercising an over-allotment option.

`Secure Element'

A potential attraction for investors is a dividend yield of as much as 4.2 percent, according to Gartmore's Gallagher.

PartyGaming said it plans to pay a dividend of $200 million for the year ending Dec. 31, which would have been two-thirds of the total payment had the company been listed the whole year.

``That will be a valuation benchmark which will have some sort of secure element to it,'' Gallagher said.

The company, which owns the online site PartyPoker and Starluck Casino and PartyBingo, said earlier this month that revenue almost quadrupled to $601.6 million last year. Net income increased to $350.1 million from $83.6 million.

Dikshit, the operations director who joined in 1998, is the biggest shareholder with about 40 percent. The other largest include Vikrant Bhargava, group marketing director, and Ruth Parasol and Russ DeLeon, a married American couple who live in Gibraltar and serve as consultants to the company.

Employee Fund

All of the money raised from the IPO will go to the selling shareholders and to a trust set aside for management and the firm's 1,100 current employees and future workers. The company employs people in London for marketing, in Gibraltar at the company's headquarters, and in India for customer service, transaction processing and technical support.

PartyGaming will start marketing its shares to investors today and expects to announce a final offer price on June 27.

Dresdner Kleinwort Wasserstein, the securities unit of German insurer Allianz AG, is leading the offer. Germany's Commerzbank AG, Sweden's Enskilda Securities Inc., Germany's HVB Group, the Netherlands' ING Groep NV, Italy's Mediobanca SpA, and Calyon, the securities unit of France's Credit Agricole SA, are acting as lead managers.

http://www.bloomberg.com - 2005-06-16 01:55:46