Times Online – Newspaper Edition

By Nic Hopkins

FRANCE T l com yesterday offered �3.9 billion ( 2.62 billion) in cash and shares to acquire the remaining 29.4 per cent of Wanadoo, Europe�s second largest internet service provider and the owner of Freeserve.
The French group said that by taking ownership of Wanadoo it hoped to take full advantage of surging profits at the company.

Adding the 29 per cent of Wanadoo it does not own would increase France T l com s annual earnings before tax, interest, depreciation and amortisation by 150 million and would also give it access to 2 billion in cash.

The bid, which it said represents a 17.2 per cent premium to Wanadoo s Friday closing price of 7.56, values Wanadoo at about 13 billion.

Thierry Breton, France T l com s chief executive, aims to make the state-controlled firm s debts of about 44 billion more manageable by boosting cashflow from subsidiaries. The former monopoly bought out minorities of Orange, its mobiles arm, last year. France T l com shares fell 65 cents to 22.12, while Wanadoo s rose by 1.17 to 8.73.

Separately, France T l com said that it planned to spin off and float as much as 49 per cent of Wanadoo s phone directory business in the second quarter of this year, making the overall deal cash neutral for the heavily indebted firm.

Analysts at Dresdner Kleinwort Wasserstein recommended that Wanadoo shareholders accept the offer, which they said values the company at an 11 per cent premium to their fair value of 8 per share.

However, other observers gave warning that the deal would dilute France T l com s earnings per share. I m not convinced of the synergies, one analyst said, noting that the strongly competitive internet broadband market meant that aggressive spending on marketing would be required for years to come.

France T l com expects the offer to begin on March 9, once it obtains approval from France s stock market watchdog. The company is also awaiting approval by Wanadoo s board, which should be obtained over the next eight days.

The offer may see Dixons, the British high street retailer that founded Freeserve, take a 71 million windfall on the remaining 37.5 million Wanadoo shares it owns, having already raised 517 million from previous share sales. The remaining shares held by Dixons underpin a 260 million convertible bond that matures in July with a conversion price of 6.94. France T l com s offer values Wanadoo shares at 8.86 each and Dixons stake at 331 million. A spokesman for Dixons said it was examining the terms of the offer.