Freeserve plays it safe with pounds 1.4bn price tag

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The Independent Online
AROUND 100,000 Freeserve subscribers - roughly 8 per cent of the 1.3 million regular users - have registered for shares in the Dixons' free Internet service provider which comes to the stock market in a fortnight's time.

The issue - which has been billed as Britain's answer to the gravity defying Internet floats in the United States like Yahoo! and AOL - is expected to be given an indicative price range of between pounds 1.35bn and pounds 1.45bn when institutional bookbuilding starts today.

The figure is some 30 per cent below the price tag of pounds 1.8-pounds 2bn that City analysts have put on the float, reflecting concern in the wake of the recent falls in Internet values on Wall Street, to ensure that what many in the City hope will be a trailblazing deal does not turn into an embarrassing flop.

The number of Freeserve subscribers who took advantage of the ability to register on-line is relatively small when looked at in the context of the big popular privatisation issues of the Eighties, but is still nearly twice as much as the 50,000 or so that Credit Suisse First Boston, and Cazenove, the City advisers to the float, had expected.

Registrations which were due to close on Friday night had to be held open for several hours longer than planned because of the backlog of Freeserve users who had complained that they had been unable for technical to reasons get their registrations in on time.

The users who clicked on the register icon on the Freeserve site were clearly undeterred by the off-the-cuff remark by John Clare, Dixons' chief executive last week, that buying shares in Freeserve was "a gamble".

The retail tranche is relatively small and the advisers deliberately avoided the kind of high-profile advertising-led promotional campaigning directed at small investors seen in other recent large-scale floats.

The minimum application has been set at pounds 250 fully paid.

Analysts say that based on the American experience investors can expect a share price rise of between 30-100 per cent in the aftermarket.

Given that Dixons price already discounts a consensus valuation of pounds 1.9- pounds 2bn, the advisers have chosen to base their pricing decision on the assumption that the initial price rise will be towards the lower end of that range.

The offer is set to raise around pounds 200m of which around half will go back to Dixons to offset the initial start-up costs with the remainder going to the Freeserve chief executive John Pluthero to use as a mini-warchest to buy up various service providers to augment its offering to customers.

Of the 20 per cent of Freeserve that Dixons is selling, around 18 per cent will be offered to the public. Energis, which supplies the telecommunications infrastructure, is taking around 2 per cent.

Some analysts have expressed doubts about Freeserve's future, despite the initial surge of interest when it launched last year. Their concern is that as other providers follow Freeserve's example and drop access charges, Freeserve will lose its attraction for Internet subscribers.

Mr Pluthero is attempting to address these concerns by adding on extra services that can be accessed through the Freeserve web site in an attempt to make Freeserve the retail outlet of choice for subscribers. Freeserve currently earns revenue from three sources: advertising, services like record or book sales, and a share of the cost of the phone call incurred when subscribers log on.

Currently, the latter is the main source. But with analysts predicting that the value of UK market for electronic commerce will beat pounds 45bn early in the next century, Mr Pluthero is aiming to be one of the three or four players that he anticipates will dominate Internet retailing in the future.