Partygaming winners are the founders
PartyGaming, the online poker company, reveals its hand on Friday and investors in this summer’s flotation will be able to see the cause of their losses.
The company came to market on the back of rapid growth: this week it will reveal that growth has ground to a halt.
Do not compare this week’s revenue figure with 2004’s, but with the stakes placed in the first half of this year. PartyGaming has not previously shown us its quarterly accounts, but while it revealed last month that income had jumped 81 per cent to $437m in the six months up until the June flotation, revenue for the three months to the end of September is expected to be just $220m — no growth at all.
The shares, floated at 116p, quickly soared to 176p with analysts at Dresdner Kleinwort, the flotation bank, setting a 210p target; now they are below 80p, though PartyGaming remains in the FTSE 100. The summer advertising blitz may have stimulated investor interest, but the vast majority of the flat revenue still comes from clients in America, where the company admits its activities are considered illegal. PartyGaming’s brief history is reminiscent of the dotcom companies — rapid growth, heavy advertising and shares that collapse shortly after flotation.
The on-line casino generates so much cash — the prospectus showed profits were 60 per cent of turnover — it did not need to raise money from outside investors and there were no existing outside investors seeking liquidity. The purpose of the float was to allow the company’s four founders to cash in their chips. The shares value has collapsed from a peak of almost £5bn to just £2.24bn — but the £980m they realised in June is a strong consolation prize. This week’s figures will show that the flotation allowed the founding quartet to take out the equivalent of two years’ turnover.
Le Stock Exchange Francaise or Die Deutsche Stock Exchange?
The Competition Commission has until 7 November to say if the French or German bids for the London Stock Exchange can go ahead — but having sought an extension to its timetable, the monopolies regulator may have its report ready as soon as next week.
The London exchange’s fate is now very different from when Deutsche Borse proposed a merger last December, provoking Euronext to consider a counterbid. The German exchange’s bid has been vetoed by its own shareholders while the Paris-based exchange is unwilling to pay the price London now seeks. While Deutsche Borse’s mooted 530p a share initially looked acceptable, London soon indicated it wanted more than 600p and now seems set on 700p.
The EC wants European stock exchanges to consolidate but the Competition Commission is less sure. While a merger would reduce costs, it would produce a monopoly that would allow fees to rise. The British regulator will allow the Paris or Frankfurt exchanges to bid if they drop their clearing operations — the businesses that match the money to the paperwork. The Germans disagree with that in principal and the French say it is difficult in practice.
However, there may now be a bid from a group the regulator has not investigated. Macquarie, an Australian investment company, can afford a high price but it reaps no synergies because it has no European financial operations. A Macquarie takeover of the London exchange would do nothing to improve competition: Europe’s three big exchanges would remain separately owned with monopolies in their own countries. But if Deutsche Borse and Euronext abandon their bids for London and merge with each other, they would create a Franco-German platform that would leave the London market as a minnow. Before Macquarie overpays, it should consider how it could compete with such a continental behemoth.
The city is NO place for ambulance chasers
If the 49,000 small Railtrack shareholders had won their case on Friday it would have opened the floodgates for class actions in this country. In America, investors file a new class-action every working day, encouraged by a legal system that makes such actions easier and cheaper than in Britain. And most sued companies pay up — although only a small proportion of the outrageous sums demanded and almost invariably they settle out of court.
These claims are often little more than blackmail and companies settle rather than face an embarrassing grilling in court. The prospect of no-win, no-fee lawyers entrapping British companies is not pleasant: had last week’s case gone the other way, the temptation would be for litigation to become a first resort, not a final remedy.
The Railtrack investors have until the end of next week to decide whether to appeal. But while it might be pleasing to see them give the government a bloody nose, it would be sad to see the City turned into a casino for ambulance chasing lawyers.