Cassava Lays Groundwork for October Float

16 September 2005

Cassava Enterprises on Thursday published its prospectus for its initial public offering on the London Stock Exchange, indicating that it will sell up to 97 million shares (about 25 percent of the company) at a price of between 162 to 212 pence per share.


"The industry has reached a stage where consolidation is going to be the name of the game over the next 18 months, and we want to be there and take it forward."

The company had previously anticipated a valuation of between £720 million (US$1.3 billion) and £830 million ($1.5 billion), but following the plummeting of rival PartyGaming's share price last week, it has lowered its expectations by about 20 percent to between £550 million ($1 billion) and £650 million ($1.2 billion).

Gibraltar-based Cassava operates the world's largest online casino, 888.com (also known as Casino on Net), as well as ReefClubCasino.com and PacificPoker.com. It will list under the name 888 Holdings Plc.

The manager and advisor of the sale, HSBC Holdings Plc, will announce the final issue price and begin conducting conditional dealings on Sept. 29. Unconditional trading will commence on Oct. 4. At least 84.4 million shares are set for sale, but HSBC has rights to sell an additional 12.7 million shares as part of an over-allotment option.

The company also 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.

Revenue from Cassava'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, but investors will probably remember PartyGaming's caution last week that revenue growth is slowing while retention rates and player yields are declining at quicker rates than expected.

Hugh Sergeant, an equities manager at SG Asset Management in London, explained the decline in Cassava's asking price by drawing a comparison to PartyGaming.

"PartyGaming is the gorilla of the industry, the biggest and most profitable," Sergeant said. "It would be wrong for 888 to be sold at a premium to PartyGaming."

Unlike PartyGaming, however, 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. For the month of July 2005, net gaming revenue from both casino and poker was at £13 million ($23.3 million), 12.5 percent higher than the monthly average from the first half of the year--even during what is traditionally a slow month for online gambling.

Fifty-five percent of Cassava's sales come from the United States, but CEO John Anderson has indicated that he would like to decrease the company's reliance on American customers and concentrate on Europe and the Far East.

Anderson, a former Ladbrokes exec, expects the float to accomplish two things: It will give Cassava great positioning as the I-gaming industry approaches another paradigm shift, and it will increase the company's credibility among players.

"Floating will not only enhance our profile but also our credibility and the important 'trust-me' factor," Anderson said during a conference call two weeks ago. "The industry has reached a stage where consolidation is going to be the name of the game over the next 18 months, and we want to be there and take it forward."