June 05, 2005 Inside the City: John Waples: Party Gaming float looks a little too rich
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GET your head round this. The London stock market, which has some of the most onerous disclosure rules in the world, is to allow a company whose core business is very probably illegal in America, to list here.
The company in question is Party Gaming, the world’s biggest online poker group, which is being groomed for a £5 billion flotation. Ninety per cent of its revenues come from the US, where the law on online poker is grey at the very best.
This doesn’t seem to bother the UK listing authority, which is also giving special dispensation to allow the company to float only 23% of its equity (the rule is normally 25%). And because it is domiciled in Gibraltar, where it only pays local tax of 6%, the company cannot hold its annual meeting here to discuss important issues such as remuneration. Its share register will also be overseas.
It would be very surprising if America allowed the company to list on the New York exchange, and US investment banks have already declined to advise on the float. Against that backdrop Party Gaming is drumming up institutional support in London to buy its shares over the next month.
Its senior management people have plenty of reason to put on their best marketing hats. Aside from the huge windfalls for the group’s four founders, Richard Segal, its likeable chief executive, will be worth £50m if the float target is reached and he can sell £12m of shares on day one.
His non-executives are also being suitably rewarded. To help justify Party Gaming’s proposed rating of 23 times earnings before interest, tax, depreciation and amortisation, the company is using Sportingbet as its quoted peer.
Anyone who can remember Sportingbet’s short history will know its share price has been up and down like Zebedee. At the moment it is bouncing high and so is online poker, but for how long? Party Gaming wants to use its paper to go global. But therein lies the rub — so does everybody else. The established gaming groups like William Hill and Ladbroke are moving into poker, and if it were ever legalised in the US, the big Las Vegas guns would be in there quicker than a New York minute.
There is no question that Party Gaming is a great site, it is accessible and has the liquidity to attract
poker players in their thousands. It has also enjoyed phenomenal growth in the past three years. A float will give it legitimacy round the world and propel it into the FTSE 100. But in doing so, the Footsie is putting its own reputation on the line and the risk factors in the pathfinder document will show by just how much. The company will float, but if it achieves a $10 billion ( £5.5 billion) valuation, I will eat my virtual chips.
Multiplex
I HAD a beer last week with John Roberts, the fiercely media-shy founder (and former chairman) of Multiplex, the quoted Australian company that is at the centre of the Wembley construction storm.
Multiplex has received a caning for its admission that the completion will be delayed and investors have baulked at the expected £45m loss from the Wembley project. This paper dished it out with the best of them.
Roberts took exception to one part of what I wrote — the inference that he had fallen out of love with his eldest son, Andrew, who is chief executive. He said he had spent the past 40 years building a valuable business to pass on to his children and had no intention of losing contact and not loving Andrew or his other two offspring.
The debacle at Wembley and questions over the group’s ambitious British expansion strategy has seriously eroded the family’s paper wealth. Roberts remains confident that his son will ride it out, but nobody can deny that it is going to be a bumpy journey.