Dixons shares soar on plan to cash in on Internet boom

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The Independent Online
DIXONS, the electronics retailer, is preparing to cash in on the soaring value of Internet stocks by floating off a part of Freeserve, its popular free Internet service which is valued at up to pounds 4bn by analysts.

Shares in Dixons jumped more than 8 per cent yesterday, adding more than pounds 500m to the value of the group, on news that it had appointed Credit Suisse First Boston and Cazenove, the merchant banks, to "explore the strategic alternatives available to Freeserve". The options include a potential flotation of a minority stake in the service.

John Clare, Dixons' chief executive, said an independent stock market listing might make it easier for Freeserve to make acquisitions and form alliances with other internet companies.

"For Freeserve to grow and prosper it might be advisable for it to have its own individual paper," he said, adding that Freeserve shares might also appeal to a different investors than Dixons shareholders.

"The core of Dixons is a rather different business which has different criteria for things like return on capital," he said. Freeserve has transformed the Internet industry in the UK since it was launched last September. Already 1.1m regular customers have signed up, making it our largest internet service provider.

The service, which pays for itself through a slice of the local phone call charges racked up by users, has prompted a host of other companies to follow suit. Organisations including British Telecom, Tesco and The Sun have launched their own free Internet services.

The amount of Internet traffic that passes through Freeserve's website has prompted analysts to start viewing the business as a portal - a site used by surfers as a gateway to the rest of the Internet. In the United States, portals such as Yahoo! and Excite have attracted huge valuations in recognition of their ability to sell advertising and conduct electronic commerce.

By comparing Freeserve to US internet stocks, analysts put a value of up to pounds 4bn on Freeserve - more than Dixons' traditional business, which includes the PC World and Currys chains. But Freeserve has yet to show it is able to generate revenues from the traffic to the site. Most of the local call revenues are pocketed by Energis, which provides the physical backbone for the service.

What's more, much of Freeserve's implied value is already reflected in Dixons' shares, which have more than doubled since the service was launched. Yesterday, they closed up 114p at 1564p.

The path to a flotation was laid earlier this year by an internal restructuring at Dixons which separated Freeserve from the rest of the business and gave it its own operating board.

Analysts generally welcomed the move but warned that Dixons should not attempt to raise cash from a flotation. "The fact is it's not theirs to sell. It belongs to the shareholders," one expert said. "And anyway Dixons is already laden with cash."

Other options for Freeserve could include issuing a tracking stock - a virtual share which tracks the performance of the business - or selling the service outright to a US group.

But experts pointed out that any buyer would be likely to want to pay for the business in shares, making a deal less attractive.