Softbank Looks Poised to Lose Gamble on Betfair

It’s happening — the long-awaited IPO of U.K.-based Betfair, that is. The now 10-year-old Internet betting exchange announced on its site today that despite bumpy market conditions, it’s going to list its shares on the London Stock Exchange next month.

Founders Ed Wray and Andrew Black — a former JP Morgan trader and a former gambler, respectively — are poised to benefit the most from the offering. Numerous press reports state that the pair, who started Betfair by pooling together roughly $100,000 of their own capital, still own 22.5 percent of the company. Analysts predict the overall business will be valued between $1.5 billion and $2.3 billion, so Wray and Black could make a killing.

Not set to make a killing is the Japanese holding company Softbank, which paid £355 million ($554 million) to buy most of U.K. VC firm Balderton Capital’s stake in 2006. Softbank currently owns 23% of Betfair.

At the time, Softbank had valued Betfair’s business at £1.54 billion ($2.4 billion). Whether the company’s value has declined since then remains to be seen, but it’s worth noting that while the Wall Street Journal has repeatedly estimated Betfair’s value at around $2.3 billion, analysts today told the Guardian that the company’s value will likely prove closer to $1.5 billion.

One analyst told the newspaper: “I think that £1bn to £1.2bn is probably fair. Institutions are in a pretty strong position these days [in terms of investing in floats]. Betfair is undoubtedly a good business, but there are risks and opportunities. I think the main problem they have is getting enough investors to sell enough shares to interest the institutions.”

All told, 14 major shareholders — including Balderton Capital, which still holds a 7% stake — control 75% of Betfair.

Betfair said on its website: “Based on indications received to date, Betfair expects the offer to comprise the sale by over half of the group of major shareholders, board members and management team of shares representing at least 10% of Betfair’s fully diluted share capital.”

In order to list the company on the LSE’s main board — which mandates that at least 25 % of a company be held by short-term investors — the company is also planning to classify the 25% of the company held by 600 small investors who have holdings of less than 1% each as a “free float,” according to materials posted today at its corporate website.

The company added in those materials that “no indications have yet been received from these shareholders with regard to their intention or otherwise to sell shares in the offer,” and that “ Betfair does not intend to issue new shares as part of the offer.”

Betfair claims to have more than 3 million users and to conduct more than 5 million transactions each day. Revenue for the company for the year ended April 30 was $530.2 million.

Betfair also owns 73.5 percent of LMAX, an exchange platform for online retail financial trading that was developed based on Betfair’s exchange technology. LMAX was originally established by Betfair in 2007. LMAX is expected to launch this quarter.

Goldman Sachs and Morgan Stanley are joint book runners for the offering, while Barclays Capital and Numis are co-lead managers.