PartyGaming Plans IPO as Online Gaming Stocks Surge (Update4)

June 2 (Bloomberg) -- PartyGaming Plc, the world's biggest online poker operator, plans to sell shares in an initial offering that may value the business at more than $8 billion as the company's owners take advantage of Internet gambling stock gains.

Shareholders of Gibraltar-based PartyGaming will sell as much as 23 percent of the stock in London this month, Chief Executive Richard Segal said today on a conference call. The sale will probably be the largest initial offering in the U.K. since Friends Provident Plc raised about $2.7 billion in July 2001.

``It's the biggest float we've seen on the London market for a long time and people are very excited about it,'' said Henk Potts, a fund manager at Barclays Private Clients in London, which manages stocks worth the equivalent of $45 billion. ``It's a flourishing business and one with massive growth potential.''

PartyGaming says it controls about 55 percent of the global online poker market, which according to competitor Sportingbet Plc has more than tripled in size to $1.5 billion over two years. Shares of Sportingbet, whose Paradise Poker is the world's third- largest online poker company, almost quadrupled in 2004 and have gained 53 percent this year as earnings have surged.

PartyGaming may be worth about $8.3 billion, according to Bloomberg calculations based on the company's 2004 net income of $350.1 million and Bloomberg data showing a price-to-earnings ratio for Sportingbet of about 23.7 at yesterday's close. That would place PartyGaming in the U.K.'s benchmark FTSE 100 Index.

Today, shares of FireOne Group Plc, a company providing payment services for Internet gambling companies, climbed as much as 16 percent as they traded for the first time.

`Phenomenal' Growth

Segal, who has stock options worth about 1 percent of PartyGaming, declined to say how much the offering will seek to raise. Anurag Dikshit, the operations director who joined in 1998, is the biggest shareholder with about 40 percent.

PartyGaming, which owns the online site PartyPoker as well as Starluck Casino and PartyBingo, said in a statement today that revenue almost quadrupled to $601.6 million in the year through December 2004 from $153.1 million a year earlier. Net income increased to $350.1 million from $83.6 million.

``The growth rates are quite phenomenal,'' said Greg Feehely, an analyst at Altium Securities in London. ``The key question is the extent to which these are sustainable.''

According to Segal, having a publicly traded stock will give PartyGaming an additional means of funding acquisitions.

Acquisition Plans?

``We would look at any companies involved in online gaming, particularly those activities we're already involved in,'' he said. Some of the more than 30,000 affiliate Web sites that help drive customers to PartyPoker may be possible targets, he said.

The company, which made more than 90 percent of its revenue in 2004 from online poker, and more than 80 percent from the U.S., plans to expand into more countries and products, Segal said.

``Competition amongst operators has intensified and I'm sure will continue to intensify going forward, but I think we are well positioned in the marketplace,'' Segal told journalists. ``There is no site where there is more action than that of PartyPoker. It is bigger than all of the competitors combined.''

PartyPoker's largest shareholders also 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, Segal said.

Dresdner Kleinwort

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, Segal said. 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.

Dresdner Kleinwort Wasserstein, hired in January to review the company's options, will manage the share sale.

The firm was hired because of its experience with the online gambling business, including advising Sportingbet on its $298 million purchase last year of Paradise Poker, Segal said.

Sportingbet, which has a market value of 926 million pounds ($1.68 billion), said today third-quarter profit almost tripled to 13.2 million pounds from 4.5 million pounds a year earlier.

Nigel Payne, Chief Executive Officer of the London-based company, said he welcomes PartyGaming's share listing.

``I'm a great supporter of their float,'' Payne said on a conference call. The share offering is ``a testimony to the sheer size and scale of this industry,'' he said. Still, ``they will have their work cut out in getting that volume of stock away.''



To contact the reporters on this story:
Paul Jarvis in London at pjarvis@bloomberg.net;
Christine Harper in London charper@bloomberg.net.

http://www.bloomberg.com - 2005-06-03 02:26:05