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William Hill IPO proves to be a safe bet

Britain's second-biggest betting shop chain William Hill side-stepped weak stock markets today and scored with an initial public share offering that attracted strong demand at the height of World Cup fever.

The share offer was more than 10 times subscribed and the stock leapt 7% above its 225 pence sterling issue price as soon as it began trading. The offer price was in the top half of the indicative range of 190-240 pence set on May 29 and valued the business at £949 million sterling.

William Hill, which has over 1,500 shops and also offers telephone and online betting, plans to use the £340 million of new money it raised to cut debt and buy up small, independent outlets among Britain's 8,500 betting shops.

The company tops a growing list of European firms bringing their shares to market despite a dismal few months for equities. Those waiting in the wings include the property management arm of Italy's Pirelli, Spanish gas distributor Enegas and Italian fashion group Prada.

The market for initial public offerings is struggling to find its feet after 18 months in the doldrums as equity markets tumbled in the global economic downturn. Music retailer HMV and IT services firm Detica both had difficult births earlier this year, while DIY-chain Focus Wickes announced an indicative price range of 230-290p earlier on Monday - below analysts' expectations.

But, there have been success stories, with energy services firm Wood and quality control company Intertek trading at a premium to their flotation prices.

Analysts said attractive pricing was a key part of William Hill's success. At 225p, the firm's shares were priced at 12.4 times forecast earnings for this year - a 29% discount to the UK leisure sector and 48% discount to the FTSE-All Share Index.

But they also cited strong fundamental reasons to buy the shares, such as the ongoing deregulation of the British betting and the surge in Internet betting. And England's progress to the quarter finals of the soccer World Cup in Japan and South Korea has been an added boost.

To meet the greater than expected demand, William Hill's private equity owners, Cinven and CVC Capital Partners, sold down a larger-than-expected proportion of their stakes. The two now hold only 27% of the shares, compared with 90% before the float and their initial target of around 44%. This stake will fall to just 18% if an over-allotment option is exercised in full.