Tiscali clinches World Online for $5.1bn

Merger creates Europe's second-largest ISP with more than three million users

Italian Internet Service Provider Tiscali on Thursday threw down the gauntlet to Europe's largest ISP T-Online with a 5.9bn euro (about £3bn) all share takeover of Dutch peer World Online to create Europe's second-largest ISP.

The enlarged company, which will have a market value of around 12.5bn euros and a cash pile of 1.6bn euros, will have 3.5 million active users, still some way short of the six million users which Deutsche Telekom's T-Online boasts.

Tiscali is offering around 0.44 of its shares for each World Online share, valuing the Dutch ISP's shares at 20 euros and giving shareholders and many World Online staff a premium of nearly 27 percent over Wednesday's 15.80 euro closing price.

The takeover could be just the beginning for the aggressive Italian company, which has seen its share price rise 10-fold since floating less than a year ago. "The bigger you are, the better. There is a process of consolidation and you either have to lead, or be consolidated," Renato Soru, Tiscali's chief executive officer and chairman designate of the new group told Reuters.

Soru, who will be the largest shareholder with a stake of 35.5 percent, later added that Tiscali would consider further acquisitions to get it to the top of the European pile. "We are looking for further consolidation. We want to be in the top three in most European countries, a position we do not have in Germany, the UK and France. We'll build (a top three position) either through consolidation or exploiting the power of our combined networks," he told a press briefing.

But he added he was not in "deep talks" with anybody at present. World Online Chairman James Kinsella, who will run Tiscali on a day-to-day basis, said that between them Soru and he had talked to "everyone" in the European Internet industry.

The combination of networks will span 15 countries, have market leading positions in Italy, the Netherlands, Belgium, Denmark and the Czech Republic, yield cost savings of up to 600m euros by end 2002, and allow Tiscali to break even in the second half of 2001, Soru said.

World Online shareholders will own between 41.5 and 46.2 percent of the combined group, and investors controlling 63 percent of its shares have already given it their backing.

World Online has been dogged by controversy since its shares crashed shortly after its Amsterdam market debut in March, when it emerged that former chairwoman Nina Brink had sold most of her holding ahead of the IPO at around $6 per share, a fraction of the 43 euros per share listing price.

World Online's share price, which hit a low of 9.95 euros in early August, regained some ground after confirming a Reuters report in August that it was in merger talks with Tiscali.

But hopes the deal may also end a turbulent period for World Online since its flotation in March were thrown into doubt by Dutch shareholder group VEB which said it would pursue a legal claim against World Online relating to its IPO.

The new company had proforma net revenues of around 165m euros for the six months to the end of June and losses before interest, tax, depreciation and amortisation of 196m euros.

Analysts said the merger made sense for both companies, since it gives Tiscali the cash which World Online gained during its IPO and because World Online was having difficulty recovering from the negative press. "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.

Tiscali, which earns half its revenues from telephone services, combined with World Online, will now have more points-of-presence and more interconnect points than any telecom operator or ISP in Europe, Kinsella said.

Tiscali shares officially closed on Wednesday at 45.95 euros, up from a year low of 34.10 in January. Tiscali was advised by UBS Warburg, Rothschild and Schroder Salomon Smith Barney, while World Online was advised by Goldman Sachs and Merrill Lynch.

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