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15 June 2005
Party Gaming Cuts Float Price
After City Doubts
Party
Gaming will today cut the value of its flotation after
hitting deep scepticism among London fund managers about the
original price tag of up to $10bn (£5.5bn).
City sources say the
online poker company will set its value at $8bn to $9.2bn,
leaving the final price to be decided after detailed
presentations to institutional investors.
Dresdner Kleinwort Benson,
the investment bank sponsoring the float, has been stung by
fund managers' concentration on doubts about the legality of
online gambling in the United States, home of most of the
players on PartyGaming's website, Party Poker.
Analysts at ING - a member
of banking consortium promoting the float - even failed to
justify a $10bn price.
ING put a "fair" value on
PartyGaming of $8.85bn and what it said were as many as six
"main" categories of risk to investors. These included the
standard concern about United States senators' attempts to
ban online gambling but extended to worries about increased
competition, collusion by online poker players and even the
risk of money-laundering through the Party
Poker
website.
ING also attached a heavy
qualification to its estimate: "We caution that valuing such
a company is a difficult exercise, given its very high
growth profile and the unstable regulatory
environment."
Scepticism among fund
managers runs deeper. The most scathing analysis was made by
a manager who is generally regarded as among the top five
most respected in London. As is usual, he did not wish to be
identified. He argued that PartyGaming should not even be a
candidate for flotation. "I wouldn't touch this float, not
even with a very long and disinfected bargepole," he
said.
"I have a real problem
with investing in a company where 85%-90% of its revenues
come from the US, where the legal status of online gambling
is vague, or at least open to doubt and
interpretation.
"Clearly internet
businesses are hard to control, but if you are hoping to
achieve a £5bn capitalisation on the world's second
largest stock market, you are purporting to be a legitimate
business. And if you are a legitimate business you can be
controlled.
"I don't want to have to
justify to my investors why I have put money into a company
where Elliott Spitzer [the New York attorney
general] could come along in two months' time and
torpedo its ability to communicate with 95% of its
customers. If this company manages to float, I believe it
will reflect badly on the London stock market and on
Dresdner."
Such criticism goes well
beyond fund managers' normal, self-interested attempts to
talk down flotation prices. It was partly shared by a
leading manager of institutional funds. "The problem with
this company is that its business is not obviously illegal,
but neither is it obviously legal," he said. "There is a
price for everything, but at the moment I am veering towards
the view that the float is toxic."
One fund manager who said
he would - in principle - be prepared to invest, added that
he was still concerned that the prime motive for flotation
seemed to be the founders' desire to sell shares. "The main
purpose of stock exchanges is to raise money for companies,
not to shuffle chips between two sets of investors," he
said.
Click
Here To Visit Party Poker
Related pages:
US
Gambling Laws Threaten £5.5bn
Float
UK
Poker Firm Set For Listing
Party
Gaming Deals Its Hand To Play For Market
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