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News > International
Wanadoo buys Freeserve
December 6, 2000: 11:13 a.m. ET

French ISP Wanadoo agrees to buy British counterpart for $2.4B in stock
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LONDON (CNNfn) - French Internet service provider Wanadoo agreed to buy Britain's Freeserve for £1.65 billion ($2.4 billion) in stock, giving it access to Europe's second-biggest Internet economy, the two companies announced Wednesday.

Wanadoo's offer, worth 157 pence per Freeserve share, represents an 11.2 percent premium to the U.K. company's closing price of 141 pence on Tuesday. The French ISP is offering to swap 0.225 of a new share in Wanadoo for each Freeserve share.

Freeserve went public in an initial stock offering in August 1999 at 150 pence a share and has been on a roller coaster ride all year. At its share-price peak of 977 pence in early March, at the height of Europe's dotcom mania, the ISP and Web portal was valued at about £9.8 billion.

graphicElectrical retailer Dixons Group PLC (DXNS), which owns 79 percent of Freeserve (FRE), will end up with a 12.7 percent stake in Wanadoo (PDOO), its second-largest shareholder after majority owner France Telecom (PFTE).  France's biggest phone company will see its present 88.6 percent share of Wanadoo drop to 74 percent after the issue of new shares to complete the Freeserve purchase. 

"This is a great deal for Wanadoo and a poor one for Dixons, which really wanted cash and to exit the business," Morten Andersen, an analyst at Deutsche Bank, told CNNfn.com. "I guess Dixons will look for the exit door (from Wanadoo) within three years." 

John Clare, Dixons' chief executive, told reporters that the firm's shareholders had complained the electronic retailer was  too exposed to the Internet sector. He said the company will eventually sell some shares, but it wasn't planning to cash in right now.

"We're all in this together for some period of time," Clare said.

Shares of Dixons, which has been trying for months to offload its stake in Britain's biggest ISP, tumbled 6.5 percent to 234.25 pence in London afternoon trade. Freeserve shares dropped 5.7 percent to 133.25 pence, and Wanadoo slipped 2.6 percent to graphic11.10, valuing the company at about graphic13.1 billion. Its parent France Telecom rose 1.8 percent to graphic98.95.

Freeserve will keep its brand name and customers will see very little difference in the service, besides some new content in the future, Freeserve chief executive John Pluthero told a London news conference.

Cash to play with

"Freeserve lacked cash, scale and international strategy," Andersen said. While it was a poor deal for Freeserve investors, "those who believe in the long-term story for the sector should be happy" that the company found a "great" partner, he said, pointing out that the combined company will have more than graphic2 billion ($1.76 billion) in cash.

"It's a great fit, they don't have any overlap and Wanadoo's parent has great assets in Britain, and above all a strategy", Andersen said. France Telecom earlier this year bought Orange, Britain's third-biggest mobile-phone operator, for $40 billion. The French firm also owns a XX percent stake in Britain's largest cable operator, NTL Inc (NTLI: Research, Estimates).

Pluthero, who will become a member of the Wanadoo executive committee, denied the company was being sold off for less than it was worth.

"It's 0.225 Wanadoo a share. That's the figure our shareholders will focus on, with all the opportunities that presents," he told CNN in an interview.

Wanadoo chairman Nicolas Dufourcq told CNN that the price should be seen as more than an 11.2 percent premium on Freeserve's Tuesday closing price, since the U.K. firm's shares also rose sharply following Wanadoo's announcement late last month it was looking at Freeserve as a merger partner.

Wanadoo wants to establish itself as one of Europe's top three ISPs, aiming to have some 10 million subscribers by 2003. The company also wants to become one of the leading publishers of the Yellow Pages and business services directories.

graphicWanadoo, which listed on the Paris stock exchange in July, is the largest ISP in France with more than 1.7 million subscribers, while Freeserve has more than 2 million users. After the transaction, Wanadoo will rank No. 3 in the European market, behind Italy's Tiscali and Germany's T-Online International AG (TOIG), Europe's most popular ISP, which has about 7 million customers.

The firms said last month that Wanadoo was in talks with Freeserve, although the British company also held talks with other, unidentified parties. T-Online had previously walked away from takeover negotiations with Freeserve.

"This is the best deal we could do, it is a very good deal," Pluthero said.

"When the capital markets stop oscillating around, they (Freeserve shares) will start to reflect the value of our business," he added.

Independent market research by IDC predicts that Web users in the U.K. will total about 31.2 million in 2001, a penetration rate of about 52 percent, second only to Germany, which is expected to have some 35.57 million users. Online advertising revenue in 2001 is forecast to total about graphic298 million, compared to graphic313 million in Germany, Europe's biggest economy.

Pluthero said that some 40 percent of Freeserve's first quarter revenue came from advertising and e-commerce. While trans-national advertising rates may increase, general rates were not expected to rise following the deal, he said. graphic

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U.K. Net firm discusses takeover; bidder reported to be France's Wanadoo - Nov. 22, 2000

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.