PartyGaming valued at £5.2bn after shares surge on debut

PartyGaming, the online casino company founded by a former internet porn baron and two technology graduates, has joined the ranks of Britain's blue-chip companies, seeing its value rise to £5.2bn on its first day of trading yesterday.

PartyGaming, the online casino company founded by a former internet porn baron and two technology graduates, has joined the ranks of Britain's blue-chip companies, seeing its value rise to £5.2bn on its first day of trading yesterday.

Shares in PartyGaming surged to 130.5p to finish 13 per cent above its listing price of 116p, after it completed the biggest London flotation in five years. Dimension Data floated in July 2000 for £6m at the height of the dot.com boom but now has a market capitalisation of about £450m.

PartyGaming's market capitalisation was about £5.2bn last night, making the eight-year-old company larger than Marks & Spencer, British Airways and Boots by valuation. It is set to gain entry into the FTSE 100 in autumn.

In the face of scepticism from major fund managers in the City, including Standard Life and Barclays Capital, investors appear to have shrugged off concerns about the fact that most internet gambling is illegal in the US, where PartyGaming gets 87 per cent of its customers.

The share offer was three times oversubscribed, sending the price soaring, and turning its founders into multimillionaires. They pocketed more than £1bn by selling 20 per cent of the company to float the business. Based on yesterday's share price, PartyGaming's foundershave stakes in the company worth £3.7bn.

Anurag Dikshit, its reclusive operations director, sold £365m of shares, and has a stake worth £1.6bn. Ruth Parasol, the former internet porn baron and brainchild behind the company, collected £189m from selling shares and has a stake in the business worth £832m. Vikrant Bhargava, PartyGaming's marketing director, sold £103m of shares and has a stake worth £468m.

Richard Segal, the chief executive who sold £9m of shares in the float and has options over a tranche worth £42m, said investors had given the company's future a ringing endorsement, despite concerns US authorities were trying to clamp down on the industry.

He said: "Most investors we spoke to were very well educated about the regulatory situation, and our listing particulars spelt it out for everyone to see. We did discuss legal issues in our presentations to fund managers, but we found there was more of a focus on ... the opportunities for us and for the industry. The fact is that we were three times oversubscribed for the offer and we have a very high quality shareholder register."

Dismissing the possibility that he and other directors may be arrested if they enter the US, Mr Segal said he would visit Wall Street soon to drum up investor support for the company. "What we do does not violate any federal law. US case law supports the view that internet poker is not illegal, only internet sports betting," he said.

At a listing price of 116p, PartyGaming shares floated well within the indicative range set by the company of 111 to 127p. It had a bumpy ride to flotation, however, and cut back its valuation estimates by nearly £1bn to attract investors put off by the high risks. Charles Hawes, a partner at Simmons & Simmons, said: "It is unlikely that US authorities may go after the directors of the company directly, given that it has no assets in the US and none of the directors are based there. But they can hit them indirectly, by attacking payment systems, which could damage the business."

Mr Segal said listing on the London stock market was important to give PartyGaming credibility and transparency as the industry consolidates. The company, which controls more than half the world's online poker market, will target Europe and Australia for growth.

Yesterday's dealings were open only to institutional investors, with full trading beginning on Thursday.