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Wednesday, 6 December, 2000, 14:21 GMT
French rival clinches Freeserve deal
Takeover graphic
French internet service provider Wanadoo has confirmed it is to buy Freeserve, the UK's largest ISP, in one of the biggest mergers yet of new economy firms.

Wanadoo has won the backing of Freeserve's board for the 1.65bn ($2.37bn) takeover, which values shares in the UK internet pioneer 11% higher than their closing price on Tuesday.

The deal, which would create Europe's third largest internet service provider (ISP), will help Wanadoo attract 10 million customers by 2003, a statement said.

"This agreement with Freeserve is a tremendous step forward in terms of our international growth strategy," said Wanadoo's chief executive officer Nicolas Dufourcq.

John Pluthero, chief executive, Freeserve
John Pluthero: "New opportunities"

The merger would make Wanadoo the number one ISP in the UK and France, "two of Europe's top three e-economies", he said.

John Pluthero, Freeserve's chief executive, said: "The additional resources of a large international group... will create new opportunities and accelerate the development of our core business."

Investor worries

But investors reacted cautiously to the merger, which would see Freeserve shareholders paid in Wanadoo shares rather than cash.

Company profile - Wanadoo
Launched first internet service in 1996
88% owned by France Telecom
1.5m active ISP subscribers
Market capitalisation: 8.32bn
Revenues: 286m (first half of 2000)

With internet share prices proving so volatile, the valuation of the takeover is likely to vary greatly over the next few weeks.

Shares in Freeserve, which were suspended on the London Stock Exchange ahead of the merger announcement, stood at 136.5p in lunchtime trading, well below the offer price.

Based on Wanadoo's share price on Tuesday, the offer valued Freeserve shares at 157p.

Wanadoo stock, traded in Paris, stood 0.07 euros lower at 11.33 euros.

And shares in Dixons, the UK-based electrical retailer which owns 80% of Freeserve, slumped 9% to 227p.

Dixons, whose support was crucial in sealing the takeover, would own 12% of the merged firm.

Directory focus

Wanadoo said the deal would enhance its aim of becoming Europe's second largest operator of web-based directories, which provides the bulk of the firm's revenues.

Company profile - Freeserve
Launched: 1998
80% owned by Dixons
2.0m active accounts
Takeover value: 1.65bn
Revenues: 16.9m (first half of 2000)

And it would allow it to exploit a UK internet sector set to boast 31.21 million users next year, ranking it second only to Germany within Europe in its total surfing population.

The UK market for online advertising is set to grow from 91 million euros (56m) last year to 586 million euros (360m) in 2003, the firm predicts.

Consumer spending through the internet is set to grow from 2bn euros (1.23bn) to 14.5bn euros (8.93bn).

Cash crisis

Wanadoo's ties with France Telecom, which owns 88% of the ISP, will support its drive to exploit new ways of accessing the internet, such as through mobile phones.

France Telecom includes the UK-based mobile phone operator Orange among other subsidiaries.

The merger would also allow Freeserve to avoid a possible cash crisis.

The ISP would, at the rate of operating loss reported in September, run out of cash in a year.

The combined firm would have a cash safety net of about 2bn euros (1.23bn), Wednesday's statement said.

The BBC' Rebecca Pike
"The advantage to Freeserve is it will become a major European player without paying for it"
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