Bundeep, Bloomberg and Freeserve. Jeff
Dixons' Freeserve Shares Soar in First Trading, After Pricing At 150 pence
By Bundeep S. Rangar and Kate Norton
Freeserve Shares Surge on First Day of Trading (Update3)
(Adds opening share price in 1st, 2nd paragraphs.)
London, July 26 (Bloomberg) -- Freeserve shares surged as
much as 48 percent on the first day of trading for the U.K.'s
largest Internet service provider less than a year after it was
created by Dixons Group Plc, the U.K.'s top electronics retailer.
Its shares rose as much as 72 pence to 222p ($3.54) from the
issue price of 150 pence ($2.39) each. At 222p, the unprofitable
London-based Freeserve has a value of 2.24 billion pounds.
The shares were priced at the top end of the range used to
canvass investor interest in the offering. Dixons, which will
retain an 80 percent stake after the offering, sold 63 million
shares, while Freeserve issued 90 million new shares. A further
22.9 million shares will be sold if demand warrants.
Since it was founded last year as one of the U.K.'s first
free Internet providers, Freeserve has leapfrogged America Online
Inc. to grab a third of Britain's Internet access market, set to
be worth $1.9 billion by 2003. While investors sought more than
30 times the shares available, some analysts said the euphoria
may not last as rivals, including AOL, offer free services.
In trading before the market opened, the shares were offered
for as much as 237.5p. However, no transactions were registered
at the time. Dixons shares fell as much as 77 pence, or 5.72
percent, to 1,269p.
''The stock will do well in the next few days but management
will need to find a way to justify these values,'' said Miles
Saltiel, an analyst at WestLB Panmure Gordon. ''Competition is
intensifying on a very broad front.''
Facing increasing competition from the likes of AOL -- which
will start its own free service next month -- Microsoft Corp.,
British Telecommunications Plc and a host of banks, retailers and
media companies that set up similar services, Freeserve is
betting the cash from the sale will bolster its Internet commerce
business. The company will gain 135 million pounds from the sale.
The U.K. market for trading goods and services online will
expand to $13 billion by 2001 from $260 million last year,
according to Forrester Research Inc.
''The money will undoubtedly be used to buy more content,''
said Neil Bradford, director at Fletcher Research Ltd., a London-
based market research company.
AOL Superior
Freeserve will need to add more content to attract more
users and differentiate it from competitors. ''They have to fight
AOL, which offers superior content,'' Bradford said.
About 50,000 Freeserve users, including the company's
employees, received shares. That's less than half the 114,000 who
had registered for preferential allocation of its shares.
Freeserve also plans to benefit from an expected explosion
in the number of Web users -- the Computer Industry Almanac
forecasts U.K. Internet users are set to more than double to 17
million next year from 1998. Its Web site is already the nation's
third-most visited behind those of Yahoo! Inc. and the British
Broadcasting Corp.
Still, Freeserve's expansion has come at a cost. For the
seven months through April, Freeserve lost 1.04 million pounds on
revenue of 2.73 million. It won't say when it expects to break
even on the revenue it gets from advertising and phone calls on
its free service.
It's also having problems maintaining clients: about 830,000
of the 2.15 million accounts opened with Freeserve are no longer
active. Deutsche Bank and WestLB Panmure Gordon, for example,
estimate the company's true value at about 600 million pounds.
On Friday, analysts Peter Wyatt and Paul Smiddy at Credit
Lyonnais Securities issued a ''sell'' recommendation on the
stock, valuing it at 106 pence a share. The issue price of 150p
was a premium to its U.S. counterparts such as AOL and Yahoo!,
they said.
Shares began trading on the London and Nasdaq stock markets
today.
The sale is being managed worldwide by Credit Suisse First
Boston and Cazenove & Co.
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