Tiscali pays $5bn for World Online

Italian internet service provider Tiscali is buying its Dutch counterpart, World Online, for $5.1bn, creating Europe's second-largest ISP.

Tiscali will emerge from the all-share deal with 56.7% of the new company while World Online will have 43.3%.

The new company, to be called Tiscali, will take second place in Europe to Deutsche Telekom's T-Online.

It is set to have a market capitalisation of about $11.2bn and says it will be a market leader in Italy, the Netherlands, Belgium, Denmark and the Czech Republic.

The deal is expected to help Tiscali break even in the second half of next year.

"The strategy makes sense in that Tiscali needs cash and World Online has cash. Tiscali can't go to the market for it in its [the market's] current state," Rufus Grantham, European ISP analyst at Lehman Brothers said.

World Online's troubles

When World Online launched its initial public offering in July, it was the biggest flotation of a European internet company.

Thursday's news provides fresh hope for World Online shareholders, who have seen the share price plunge since it emerged that its founder Nina Brink had sold most of its holdings at a low price.

The controversy surrounding the sale of Ms Brink's shares led to several shareholder complaints and resulted in her resignation in April.

Unmetered 'unviable'

World Online has also become the latest ISP to admit that providing unmetered internet access in the UK is just too expensive.

In an e-mail sent to customers in the past 24 hours, it said: "World Online is currently having to review its products and pricing."

It cited the delay in BT introducing a flat-rate charging system for internet access as the reason.