PREPARE to place your bets on what will be the biggest and most colourful listing on the London Stock Exchange since that of Orange four years ago. The proposed flotation of PartyGaming will certainly provide plentiful fodder for those who view the stock exchange as little more than a casino.
The background in “adult entertainment” of Ruth Parasol, the company’s exotically named founder, not to mention the dubious legality of internet poker in PartyGaming’s core American market, have already proved rather too colourful for Investec. the bank recently threw in its cards as joint adviser to the float, leaving Dresdner Kleinwort Wasserstein to press on alone and collect an estimated £50 million in fees.
But DKW is not the only party destined to profit handsomely from PartyGaming’s move on to the stock market. Richard Segal, the former Odeon Cinemas boss who joined as chief executive just last summer, will collect one per cent of the group’s market value, worth perhaps £50 million, in share options of which almost a quarter will crystallise on flotation and the rest over four years.
The non-executive directors are also set to do rather well, with Michael Jackson, this one the former head of software group Sage rather than a notorious child-befriender, set to pick up a £500,000 salary as nonexecutive chairman as well as an IPO bonus rumoured to be £1 million.
Such largesse has led to claims that they are being paid “danger money” to compensate for the regulatory concerns that still hover over the business, although Mr Segal was adamant yesterday that this was not the case. He naturally argues that PartyGaming may be an online gaming business but it is nevertheless a very large and successful company, and one which will be propelled into the FTSE 100 index. Directors should, he says, be properly rewarded and the winnings are being spread down the company, with four owners set to give away 5.6 per cent of their shares to employees as options over the next four or five years.
But the biggest question potential investors are likely to be asking is not about the scale of the rewards but why the owners are prepared to share some of any potential future bonanza they predict with outsiders. With forecast operating cashflow this year of $600 million, the company does not need to raise money to fund acquisitions or to pay down debt. There are plans to expand into other games, and to introduce different language sites so that more people can experience the opportunity to lose money online, but the costs involved would be tiny in comparison to the current income flow.
The company says it wants the greater “credibility and transparency” that a listing will bring but that is unlikely to reassure those who still feel nervous about the online gaming industry and the phenomenal growth it is currently enjoying. In 2002, PartyGaming made £5 million from its poker website worldwide. This had risen to £68 million a year later and £304 million in 2004. In the first quarter of this year it had raked in £115 million, from where the bankers have had little difficulty in putting a price tag of around £4.4 billion to £5 billion on the business.
It would not be surprising if the four 30-something owners have decided that it would be sensible to cash in a slug of their chips at this point. If, as the company claims, online poker in the US is proved to be perfectly legal, you can bet that the Las Vegas casino behemoths, not to mention our own Ladbrokes and William Hill, would soon be looking to challenge PartyGaming’s apparently winning hand. Only the rashest of gamblers would not want to take a profit at this stage.
Taking off the US's shackles
GEORGE BUSH could not have made his intentions towards corporate America and Wall Street clearer. The time of recrimination after Enron, which was so embarrassingly close to the White House, is over. From now on, the policy is to free America’s financial services industry from oppressive regulation that could hinder development and deter innovation. When US exchanges face newly intense competition and a period of rapid catch-up, that amounts to a presidential slap on the back.
William Donaldson, who was sent to the Securities and Exchange Commission on a clean-up mission in 2003, took to his work with a zeal and persistence that Mr Bush’s Republican hierarchy had not anticipated. He could afford to be his own man, being over 70, wealthy and having a large collection of life’s T-shirts. He voted with Democrats as often as Republican commissioners and seemed to care about things that seasoned financial professionals are not meant to take seriously, such as investors being able to buy and sell shares at best prices.
Christopher Cox, his quickly nominated successor as SEC chairman, is in mid-career. He is half way up Everest, not yet at the top. He needs to please those who put him in office and do what he is expected to do. Mr Cox also believes in freeing business from rules that stifle enterprise. As a Republican California congressman who came to Washington with Ronald Reagan, he sponsored the Bill to ban internet taxes, a key to the growth of online commerce that has never seriously been challenged. He was also a venture capital lawyer in the years when California was building the foundations of the dot-com boom. If approved, the newcomer could try to reverse Donaldson initiatives. But he can do little about the Sarbanes-Oxley Act, which has brought most of the extra overhead costs and legal hassle that is sending companies away from Wall Street.
The SEC has discretion, however, over applying the act to foreign companies. In Britain and across Europe, the tentacles of Sarbanes-Oxley are breeding bumf and creating a box-ticking, risk-averse culture.
Britain’s Financial Services Authority and European Commissioner, Charlie McCreevy, should already be drawing up a more ambitious wish list of reliefs to take to Washington at the first suitable moment. And they should re-examine all the hasty measures imposed here in the wake of a scandal that was always largely American.
Spark of hope
A NEW sense of realism is taking hold in the European Union. After the French and Dutch referendums, the British yesterday were given another reason to have some optimism over the future direction that the EU might take. Sufficient ministers opposed the idea of scrapping Britain’s opt out from the Working Time Directive for the issue to be effectively shelved for several months at least.
British business has been adamant that it should not be forced to lose the flexibility that it now enjoys by being strait-jacketed into a 48-hour limit on the working week. Despite trade union pressure, the Government has held to this line. Leading those countries opposing Alan Johnson, the Trade and Industry Secretary, yesterday was France but Germany apparently supported the opt out.
Perhaps here there is a glimpse of the EU that may have a workable future; one in which countries pick and mix the policies that they believe will work for them within a framework geared to open trade. Let those who wish to enhance competitiveness do so, while others choose to go slow.
- LORD GORDON of Strathblane, the chairman of Scottish Radio Holdings (SRH), is in a tight spot. He also sits on the board of Johnston Press, the local newspaper group, even though SRH has its own modest local press business. Now Emap has discreetly lined up Johnston Press to help it break up SRH, meaning that Lord Gordon is sitting on the board of one company that is ready to help dismember the business he chairs. Doubtless everything has been properly handled, but SRH shareholders might be reassured if they saw that their chairman was unambiguously on their side.
