Attempts by the four founders of the online gambling company PartyGaming to further enrich themselves by selling down their shareholdings partly backfired yesterday after they were forced to scale back the offering.
They had hoped to sell 8 per cent of the company but in the end only managed to dispose of 5 per cent of the holding in a poorly received share placing.
PartyGaming was the biggest faller on the FTSE 100 as other investors sold the shares. The stock fell nearly 7 per cent at one point and ended the day at 117.75p, down 3.7 per cent. The group's broker, Dresdner Kleinwort Wasserstein, was forced to scale back the sale to 200 million shares from a planned 350 million, and raised only £232m. The shares were priced at 116p each, the price at which PartyGaming floated a year ago and below the targeted range of 119-120p.
The founders were locked into their holdings until the end of the month and needed the broker's permission to sell their shares earlier. The lock-up has now been extended until the end of December and once again they would need the nod from DKW to sell earlier. When asked why the broker lifted the lock-up early, a PartyGaming spokesman said: "DKW's primary responsibility in a lock-up is to maintain an orderly market." He denied that other shareholders were unhappy. "The stock overhang has been dealt with," he said.
The placing had been teed up for Tuesday but due to a lack of investor appetite it did not go ahead then. Insiders said DKW started the placing with 350 million shares at 119-120p, then went down to 114-115p and some funds even pushed for a price as low as 110p. But the founders were not prepared to sell for less than 116p.
Anurag Dikshit offloaded 57 million shares, taking his 30.4 per cent stake in the business down to 28.95 per cent, while Vikrant Bhargava sold 67 million shares, leaving him with a 6.96 per cent holding. Ruth Parasol and her husband, Russell DeLeon, each sold 33 million shares leaving each of them with 14.87 per cent of the company. Together, the four still own 65.7 per cent of PartyGaming.
The shares had been depressed ever since Mr Dikshit and Mr Bhargava announced they would step down from the board two weeks ago, raising questions over their stakes in the business and sparking fears that a flood of shares would soon hit the market.
The official reason given for the sale was that the founders wanted to diversify their portfolios. They have to maintain a majority holding until 2010 to keep the company's favourable tax status in Gibraltar, and would have to give PartyGaming 12 months' notice if they chose to sell below.
Mr Dikshit, PartyGaming's technology guru, has stood down as group operations director but will remain as head of research, while Mr Bhargava, the marketing director, is leaving at the end of the year.
Analysts at ABN Amro said: "We believe that the founders could still reduce their shareholding by about 11 per cent without risking the loss of their favourable tax status in Gibraltar."