King Digital Entertainment Plc, maker of the popular smartphone game “Candy Crush Saga,” is offering shares in its initial public offering at a price that values the whole company at as much as $7.6 billion.
King, whose owners include Apax Partners LLP and venture capital firm Index Ventures, could raise as much as $533 million by selling 22.2 million shares for $21 to $24 apiece, according to a filing Wednesday. The company plans to use the funds for working capital and acquisitions and has applied to list its shares on the New York Stock Exchange under the symbol KING.
At the high end, King would be valued at 4 times last year’s sales, compared with 6 times at Zynga Inc. (Nasdaq: ZNGA), a pioneer in social gaming. Zynga’s “Farmville” game faded in popularity as users defected to “Candy Crush,” and its shares have slumped 44 percent since its 2011 IPO. The discount may reflect investors’ skepticism about the prospects for “Candy Crush,” said Arvind Bhatia, analyst at Sterne Agee & Leach Inc.
“‘Candy Crush’ is in slight decline and I think that’s what investors will focus on,” Bhatia said by phone from Dallas. “They are trying to be cognizant of what happened to Zynga.”
King’s average monthly unique players declined to 12.2 million in the three months to December from 13 million in the third quarter, according to the prospectus.
“Candy Crush,” a puzzle game that features colored candies, made up 78 percent of cash spent by players at King last year. Demand for “Candy Crush” helped drive an elevenfold surge in revenue in 2013 to $1.9 billion. Profit jumped to $567.6 million from $7.8 million a year earlier.
The company generates revenue when users purchase virtual items, such as extra lives or additional game content, for about $1 apiece. The applications operate on smartphone devices of Apple Inc.’s iOS, Google Inc.’s Android and Amazon.com Inc.’s Kindle and on Facebook. In the fourth quarter, 73 percent of cash spent by users came from mobile, filings show.
Zynga’s shares have been recovering lately as investors bet on Chief Executive Officer Don Mattrick, who left Microsoft Corp. to take the helm at Zynga in July and has focused on retooling the company to focus on games for smartphones and tablets.
The company’s shares rose 24 percent in a single day in January after Zynga said it will cut 15 percent of its staff and buy a popular mobile developer.
“Zynga is currently being valued as a turnaround situation, with a new chief executive officer, and the market is optimistic that Zynga’s results will be better,” Sterne Agee’s Bhatia said.
At $22.50 a share, the midpoint of the price range, the net proceeds would be $326 million after deducting underwriting discounts, commissions and expenses, according to King’s filing. The company also has an over-allotment option to sell 3.33 million shares.
Apax Partners, a London private equity firm, holds a 48.2 percent stake in King, while Index Ventures owns 8.3 percent, filings show. Co-founder and Chief Executive Officer Riccardo Zacconi owns 10.4 percent, and John Sebastian Knutsson, co-founder and chief creative officer, holds 5.9 percent.
Zacconi, 46, has been CEO since 2003 and previously served as an executive at uDate.com Ltd., an online dating service. He also held positions at Benchmark Capital Partners LP, a venture capital firm, and Boston Consulting Group Inc.
King will have 314.9 million shares outstanding after the offering, according to the statement. King has paid $504 million in dividends to its owners in October, and February, filings have showed.
JPMorgan Chase & Co. (NYSE: JPM), Credit Suisse Group AG (NYSE: CS) and Bank of America Corp. (NYSE: BAC) are managing the King IPO.