888 Floats

30 September 2005

Gibraltar-based I-gaming operator 888 Holdings Plc floated on the London Stock Exchange Thursday morning, raising £147.7 million (US$261 million) through the sale of 84.4 million shares at 175 pence each.

"The industry is ready for consolidation. There are a lot of operators at the moment, but in a couple of years there will only be a handful, of which we will be one."

The sale price falls near the bottom of the anticipated 162p-212p range, presumably due to investors' apprehension with online gambling stocks following news that PartyGaming's revenue growth will not meet expectations.

Less than a month ago 888 hoped to make as much as £285 million ($500 million) through its initial public offering. It also anticipated a valuation of between £720 million ($1.3 billion) and £830 million ($1.5 billion), but lowered its expectations by about 20 percent to between £550 million ($1 billion) and £650 million ($1.2 billion) by the time it published its prospectus two weeks ago. Thursday's sale values the company at £590 million ($1 billion).

"There is a clear reason for what one could argue is conservative pricing and that is they're taking notice of the price and volatility of PartyGaming," Bob Parker, a deputy chairman of Credit Suisse Asset Management in London, told Bloomberg News.

David Buick of Cantor Index offered another explanation to BBC. "We don't know the track record on a historical basis of these online gambling companies," Buick explained. "We know what we will make this year and next year, but we don't know what they will be doing in five years' time."

888's share price rose 2p to 177p during the first hour of trading, but fell throughout the rest of the day. Shares were listed at 164.75p--nearly 6 percent below issue price--by late afternoon,

The 84.4 million shares sold to institutional investors through conditional dealings represents about 25 percent of the company. Despite a sale price near the bottom of its expected range, the company stated that the offer was "well received by investors and was approximately five times subscribed."

Full trading of 888 shares will begin on Tuesday, when the company becomes officially listed on the London Stock Exchange.

The sale's manager, HSBC Bank, retains the option of selling an additional 12.66 million shares so that it may stabilize or maintain a market price at a higher level than what might otherwise prevail for a period of 30 days after the sale as part of an over-allotment option.

888 has consistently indicated that it plans to use the funds raised through a float to fuel growth through acquisitions.

"We have money ready for acquisitions going forward," CEO John Anderson said. "The industry is ready for consolidation. There are a lot of operators at the moment, but in a couple of years there will only be a handful, of which we will be one."

The company has also indicated that it would like to decrease its reliance on U.S. players (which account for 55 percent of its revenues) and focus on Europe and the Far East.

With the publication of its prospectus, 888 announced that beginning in October 2006, it plans to deliver an annual dividend worth about 50 percent of the its net profit. It reported a pre-tax profit of about £23 million ($41 million) in 2004.

888 Holdings, which is also sometimes referred to as Cassava Enterprises, operates the world's largest online casino, 888.com (also known as Casino on Net), as well as ReefClubCasino.com and PacificPoker.com.

Revenue from 888's casino division improved by 14.2 percent during the first half of 2005 compared to the previous year. Poker revenues, meanwhile, rose by 226 percent. Unlike its largest rival, PartyGaming, Cassava boasts a strong business apart from its online poker operations; the casino business represented two-thirds of the company's £68 million ($123.7 million) in overall sales during the first half of 2005. Net gaming revenue from both casino and poker for the month of July 2005 (traditionally a slow month for online gambling) was £13 million ($23.3 million)--12.5 percent higher than the monthly average for the first half of the year.

Bradley Vallerius

Articles by Bradley P. Vallerius, JD manages For the Bettor Good, a comprehensive resource for information related to Internet gaming policy in the U.S. federal and state governments. For the Bettor Good provides official government documents, jurisdiction updates, policy analysis, and many other helpful research materials. Bradley has been researching and writing about the business and law of internet gaming since 2003. His work has covered all aspects of the industry, including technology, finance, advertising, taxation, poker, betting exchanges, and laws and regulations around the world.

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