Betfair Snubs Private Investors

Published in Company Comment on 7 October 2010

IPO price range is revealed, but its fans are left on the sidelines.

The pioneering betting exchange Betfair (LSE: BET) has revealed the indicative price range at which it plans to float its shares when it lists on the London stock market later this month.

At the top end of the punchy £11 to £14 band, Betfair would be valued at just shy of £1.5 billion -- sufficient to put it towards the top of the FTSE 250.

Not bad for a bookie-cum-matchmaking service that was only founded a decade ago.

Given their inherently sporting nature, we'd not be surprised to hear that many Motley Fool readers enjoy pitting their wits by making wagers (modestly, we trust!) on Betfair's various portals.

Unfortunately though, as we reported last month the great unwashed like us won't be able to take the next logical step and show our enthusiasm for Betfair by subscribing for an allocation of its shares, since the initial offer will be a big institution-only affair.

Unfair to small shareholders

Betfair's advisers will doubtless say they're saving the company money by shutting private investors out of the IPO. We understand the mathematics, but it still seems a shame a company that built its business on the back of a community is thinking so firmly inside the box on making its market debut. Betfair tell us that because over 50% of its customers are overseas, it would have been impossible to treat everyone fairly.

But shutting out retail investors is especially ironic given that the company has been allowed to float just 10% of its shares as part of a strategy to bolster demand in what's been a lousy year for IPOs. Because Betfair already has some 650 investors who together own a 30% chunk of the company, it can get around London Stock Exchange rules that say a new IPO must offer at least 25% of its shares in a free float.

Initial demand might have been boosted further if it had also made subscribing for the shares an option for customers of its website!

Two weeks to make your mind up

Betfair expects to confirm the price at which it will first list its shares on October 22, with full trading commencing on October 27.

Once the shares are listed, of course, anyone will be able to buy them. It may pay to work out what you think the shares are worth in advance by downloading the prospectus from its corporate site, so you can take advantage of any initial weakness in the price.

More from Owain Bennallack:

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buywhenhigh 07 Oct 2010 , 6:39pm

As one of Betfair's "premium customers" I am not suprised by their arrogance. They have repeatedly increased charges, added a "winners tax" of 20% to successful traders, and they even skim a small percentage of most of their 2 and 3 way markets (Which I believe one day will come back to haunt them legally.)

4 years ago I couldnt praise Betfair enough but today I cant wait for an alternative exchange to become viable. When that happens (and it will) myself and quite a few of the big players will gladly and willingly jump ship and stick two big fingers up to Betfairs greedy owners.

wokingblade 09 Oct 2010 , 6:23pm

I like Owain's suggestion to prepare a valuation - its the first timeI tried this and I was staggered at the flota price. I'd be prepared to pay up to £3 for last year's 14.4p/share earnings, so Betfair is going to have to go some to justify a price north of £11. When I look at my portfolio for a share priced close to the Betfair range, I am seeing almost ten times the earning per share. Now I like a good growth story, but this one's not for me.

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