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Poker firm comes up trumps in £5bn floatation

PartyGaming, the world's biggest online poker company, announced plans yesterday to float on the London Stock Exchange in what is likely to be the City's biggest new listing for four years.

Based in Gibraltar, PartyGaming barely existed four years ago but riding a wave of popularity in online gaming, the operator of the PartyPoker Website is set to be valued at £5bn, bringing a major windfall for executives and employees.

With that sort of valuation, PartyGaming would immediately enter the FTSE 100 share index. The flotation would be London's biggest since insurer Friends Provident in 2001.

PartyGaming said the initial public offering would provide it with money for acquisitions in a fragmented industry.

"This is a young business in a young industry that is highly fragmented, and consolidation is inevitable," Richard Segal, the chief executive, told reporters. "In terms of opportunities, we would look at any companies involved in online gaming, and particularly those areas we are already involved in."

Mr Segal, who joined the company less than a year ago, added that it would also look at companies that drive traffic to its site.

PartyGaming said its revenues in the first quarter of this year were $222m (£122m), up 93% from a year earlier. Operating profit in the quarter jumped 81% from a year earlier to $128m.

Online poker has boomed in recent years, appealing to a wider audience - including women - than traditional casino gambling. The spread of broadband, coupled with the convenience of playing at home has contributed to the popularity, boosting revenues at companies hosting the sites, which also have low costs.

The flotation will mean a bonanza for executives and employees. Mr Segal, who was chief executive of the Odeon cinema chain, will have shares and options representing about 1% of the company and estimated to be worth at least $80m.

PartyGaming said that as part of the listing, its owners had given 5.6% of the company in options to current and future employees. The options will be redeemable in four or five years and include options for management.

The company currently employs about 1,100 people, with 126 at its head office in Gibraltar, 57 in marketing in the UK and 925 in customer and IT support in India.

The windfall is worth an estimated two to three years' salary for the average employee. PartyGaming will not sell any new shares in the IPO, and stock will be sold by its founding shareholders.

Anurag Dikshit, the group's operations director, is the biggest shareholder. Other major backers are Vikrant Bhargava, the marketing director, and consultants Russell De Leon and Ruth Parasol.

The flotation will seal London's status as the de facto listing centre for Internet gambling companies, partly because online gaming is strictly regulated in the US but welcomed in Britain, even though most players are in the US.

Other possible listings include Cassava Enterprises, the owner of and one of the world's biggest Internet gambling groups, valued at about $1.6bn.

The Treasury is thought to be in the final stages of a review of tax treatment for gambling businesses following the Gambling Act, which passed through parliament in May.

The government, determined to make Britain a hub for gambling businesses, dramatically reduced the tax on online sports bets in a deal with the major bookmakers three years ago. In exchange, they brought their online sports books back from offshore tax havens.

PartyGaming has been discussing an appropriate tax rate that would attract other online betting businesses to the UK. The Treasury is believed to be keen on a tax rate of 2% to 3% on operators. However, PartyGaming is believed to consider British corporation tax at 30% too big a burden for it to consider a move from Gibraltar.

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