Dixons to float pounds 300m tranche of Freeserve

THE APPETITE of British investors for Internet shares will be put to the acid test next month when Freeserve, the country's largest Internet service provider (ISP), is floated by Dixons in an estimated pounds 1.5bn initial public offering.

The offer will comprise an issue of new shares by Freeserve along with a sale of shares by Dixons. Together, those tranches are expected to raise around pounds 300m, with Dixons pocketing about pounds 150m.

If successful, it would be Britain's biggest IPO and would provide a veritable profit windfall for Dixons.Dixons spent about pounds 1m getting Freeserve up and running. It was launched last September.

Of the expected 20 per cent IPO listing, Planet Online, a unit of alternative telecoms firm Energis and the provider of Freeserve's network infrastructure, is to be gifted a 1.75 per cent stake and will have the option of buying a further 2 per cent over the next four years.

Dixons has pledged not to sell further Freeserve shares for a year and has also committed to maintaining a 40-per-cent stake for two years. Sources said Freeserve shares could eventually be used as acquisition currency to gain other Internet players, though that would effectively dilute the size of Dixons' holding.

Since Freeserve began offering services last autumn, it has attracted 1.25 million users, and over 50 rivals have jumped on the free ISP bandwagon.

Freeserve would dwarf the only two pure Internet companies listed on the Stock Exchange, Easynet and Internet Technology Group. Easynet has a market capitalisation of pounds 130m and ITG pounds 74m - both well above their market debuts.

There are no details yet of how the global offering will be split between UK investors, who have been sceptical of the Internet boom, and US investors, who have rushed to back the wave of Internet IPOs unveiled over the past year.

Freeserve's estimated pounds 150m flotation proceeds are to be used for marketing, brand and content development, acquisitions and strategic investments. "The flotation of Freeserve is an important milestone in our strategy to become the UK's home on the Internet," said John Pluthero, Freeserve chief executive.

Mr Pluthero, 35, and fellow executives, chief operating officer Mark Dandy, 31, and chief financial officer Nicholas Backhouse, 36, are likely to become millionaires after the float.

A Dixons spokeswoman said: "They will have packages that are commensurate with their roles."

Free ISPs' biggest source of revenue is from receiving a percentage of telephone network access charges. But website advertising banners and commissions from e-commerce transactions are likely to prove far bigger earners as ISPs gain critical mass and begin to tap the mass market.

Freeserve users can buy books from Bertelsmann and CDs from Audiostreet on-line.

UK retail investors must register for a mini-prospectus by accessing the Freeserve home page. The deadline for registration is 1400 GMT on 9 July. Prospectuses will be mailed the week of 12 July, with share dealing to begin in late July or early August.