US gambling laws threaten £5.5bn float - Sunday 12th of June 2005

Partygaming, the Gibraltar-based owner of the world's biggest online poker site, may be forced to pull its £5.5 billion London float as fears grow about the legality of internet gambling in the United States.

Analysts at blue-chip US institutions who would be expected to buy shares in PartyGaming said this weekend they will not automatically back the firm and will need convincing that the US government will not harm the company. Online gambling is illegal in America.

The situation could force PartyGaming either to lower its target price or possibly pull the float altogether.

One analyst said: 'The key point is will US institutions back this? We don't know. It is on a knife edge as far as I can see.'

The stakes could not be higher for PartyGaming's four owners who would share more than £1bn in cash if they succeed in selling the 23 per cent of the firm they created five years ago. They include Ruth Parasol, who made her first fortune from sex websites and phone lines, her husband Russ DeLeon and Indian computer whizz, Anurag Dikshit.

The US Department of Justice considers all online gambling illegal under the Interstate Wire Act, and numerous states have anti-betting laws that may apply to online poker. There are no internet gambling firms based in the US. Instead they are located in the Caribbean and Gibraltar.

PartyGaming admitted this weekend that it takes 90 per cent of its revenue from the US. Its prospectus will be published by the end of next week and the firm will then attempt to persuade institutions to back the company.

Legal fears, as well as concern over the past career of Parasol, are believed to be behind the decision of Investec Securities to quit its role as co-banking adviser to PartyGaming last month. And they now threaten what could be one of the most colourful initial public offerings seen in London for years.

If PartyGaming achieves its target, it will be worth slightly less than Marks & Spencer. It is paying £500,000 to part-time chairman, Michael Jackson of Sage.

One analyst of a major US bank said: 'We will take a deep breath about whether we want to back this. We have to weigh up how much further there is to run on the internet gambling growth story, whether the background of its management is a credibility issue but most importantly, the legal status of its core business in its core market.'

The fate of PartyGaming is vital to a growing band of similar firms hoping to float later this year. Biggest among them is Cassava, which owns high poker site 888.com. The Israeli-owned business intends to float in London this September, advised by Credit Suisse, with a valuation of £800 million.

Internet gambling bosses hope a London listing will give the sector credibility. The US government is coming under increasing pressure to clarify its position on internet gambling. If it did rule out taking legal action, Ladbrokes and Las Vegas giants would quickly move to establish themselves in America.

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