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Monday, July 12, 1999 Published at 11:08 GMT 12:08 UK


Business: The Company File

Freeserve gets a price tag



Dixons has ended feverish speculation by announcing the flotation price range for Freeserve, its hugely successful Internet service provider. It values the company at £1.31bn to £1.51bn ($2.02bn - $2.34bn).

Publishing the prospectus for the flotation of 18.25% of Freeserve on the stockmarket, Dixons said shares would cost 130 to 150 pence.


[ image: Dixons will receive half the cash raised by the flotation]
Dixons will receive half the cash raised by the flotation
The final offer price will be announced at the end of the month and trading in Freeserve shares will begin on 2 August.

Electronics retailer Dixons set up the free Internet service in September 1998, and it has yet to show a profit. But within a few months Freeserve had become the UK's biggest Internet service provider (ISP) and now has more than 1.3m users.

Market analysts have said the value of Freeserve is in its potential as a medium for e-commerce and advertising, rather than its current position as the UK's most popular ISP.

Researchers at Deutsche Bank say this means the number of people who visit Freeserve's website is more significant than how many people use the company to gain access to the Internet.

They say Freeserve is currently about the ninth most popular website in the UK and that on this basis it is worth much less than the flotation price. But they also say they believe the flotation will be successful, especially as the quoted price range is well below some forecasts.

Credit card

Freeserve stole a march on rivals by being the first major operator to offer free access to the Net. Now it says it will be launching an Internet-based credit card in association with HFC Bank, a subsidiary of Household International.

Applications for the card may be made online, and card-holders will also be able to access their account details and pay their bills online.

Freeserve is also paying £3.7m for Babyworld, an Internet business offering information to pregnant women and new parents.

Babyworld offers more than 2,000 pages of information and without any marketing has already logged 6,500 registered users since its launch in April.

Volatile trading forecast

Experts say the price of Freeserve shares is likely to swing wildly after the float as the markets are still not sure what to make of Internet stocks.

George O'Connor, a technology analyst at Granville Equity Research, said: "They have primed the market to expect anything up to £2bn, so they will want to come in below that to encourage positive investor sentiment. This is the way into Europe Internetland for US investors."

Dixons is floating a minority stake and will receive half the expected £300m raised, which it may use to extend its Internet-related business by buying a growing small company.

With only about a fifth of Freeserve up for sale, analysts believe there will be a scramble. But they say it could set the European Internet bandwagon rolling.

Already, online auctioneer QXL has said it will float in September with a planned valuation of up to £750m.

British online financial services firm the eXchange is also looking to float about 30% of its stock for up to £200m.

The market for Internet investment is still unknown. Some argue that the Net allows companies to slash their business costs. Others say you cannot make money out of the internet itself, you must build up a business first, then use the Net to boost trade.



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