Freeserve takeover talks collapse

German internet service provider T-Online is reported to have pulled out of talks with UK electrical retailer Dixons over buying Freeserve.

Dixons' web offshoot is the UK's biggest internet service provider and T-Online - already Europe's biggest - was understood to be the front-runner in the race to snap it up.

News agency Reuters quotes an industry source as saying: "For both of them, this deal makes sense but for now the talks are off.

"The real difficulty for T-Online is that pay levels are nowhere near the same, and this was a sticking point."

Differences appear to have centred on the higher rates of pay at Freeserve compared with T-Online and incompatibility in management styles.

There is also said to be concern that Freeserve's management might leave after cashing in their share options.

Capitalised

Dixons' 80% stake in Freeserve has a market value in excess of £3.5bn.

T-Online, which is part of Deutsche Telekom, has indicated that it is not prepared to overpay for Freeserve and that it is interested in other ways of entering the British ISP market.

It is said to be actively exploring these with its UK mobile phone operator One2One.

With T-Online stepping back, US cable company NTL and Spain's Terra Networks are thought to be interested in furthering their proposals for a deal with Freeserve.

Freeserve announces its first full-year results on Tuesday morning.

Since it floated last July, only 10 months after it was founded, Freeserve's market capitalisation has fluctuated between £1.8bn and almost £10bn.

Its share price at the close on Friday was 438.75 pence.