Freeserve offering price will be 1.5b. From the 7/10/99 London Times. Jeff
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Dixons prices Freeserve at 'only £1.5bn'
BY CHRIS AYRES
FREESERVE, the free Internet service owned by Dixons Group, is likely to be valued at £1.5 billion - the very bottom end of City expectations - when its flotation prospectus is issued on Monday.
The prospectus, to be finalised this weekend, will also include a 10-page "health warning", describing the many "risk factors" involved in buying shares in a highly valued Internet company with no significant trading record, tiny sales, and no profits.
The Stock Exchange, which could have refused permission for Freeserve to float because of its lack of a trading record, demanded that the extensive risk analysis be included in the prospectus. "The disclosure was necessary for the Stock Exchange to be satisfied that investors would know what they were buying," a source close to the float told The Times.
In spite of this, more than 100,000 Freeserve users have already registered to buy shares in the company, which was the first to launch a large-scale free Internet service in Britain. However, the number of users who have registered to buy shares represents only a fraction of the company's 1.25 million "active" subscribers - so called because they access their Freeserve account more than once every 40 days.
Dixons sources yesterday claimed that this was "in line with expectations". However, in a survey conducted by MoneyWorld, the personal finance Internet service, nearly 60 per cent of 2,300 respondents said they thought Freeserve was worth less than £600 million. Only 24 per cent of respondents said it was worth more than £1.8 billion.
Many believe that Dixons has deliberately encouraged overinflated valuations of Freeserve - with some analysts claiming that it is worth up to £3 billion - so that it can surprise the City by offering it at a "heavily discounted" price. The success of the float is seen as crucial because it is the first large scale Internet company to go public in the UK.
Already, Freeserve has encouraged a wave of other Internet companies to join the stock market. These include: QXL, an online auctioneer, which will float in September with a planned valuation of £750 million; the eXchange, an online financial services company which is planning to float this summer with a valuation of up to £400 million; and Funmail, a novelty e-mail service set up by a public relations executive, which is also planning to float this summer with a value of £30 million.
Senior City sources say Dixons expects Freeserve's "fully distributed value" - ie, after 30 days of trading when all the shares are issued - will be about £2 billion. However, they believe the company's flotation price should be at a significant discount to this value. Most flotation discounts are about 10 to 15 per cent, but Internet discounts can be 30 per cent or more, the source said. Freeserve's flotation discount is expected to be between 25 and 30 per cent.
Freeserve's flotation prospectus will also include updated subscriber numbers, which are likely to be significantly higher than the 1.25 million recorded at the end of May, thanks to the company's extensive national advertising campaign.
This will help boost City sentiment towards the flotation, because the company has so far been valued on a "per subscriber" basis. This is similar to the way America OnLine, the US Internet company, is valued.
WEBSITE: www.freeserve.co.uk/
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