Ionica to be valued at pounds 570m after London and US flotation

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The Independent Online
Ionica, the company that is setting up a rival domestic telephone network to BT based on innovative radio technology, will be valued at pounds 570m when it floats on the London and New York markets next month.

The flotation, priced at between 370p and 390p a share, will raise pounds 125m of new finance to help Ionica complete its network of base stations. Nigel Playford, founder and chief executive, will be left with a 6.6 per cent stake valued at pounds 37.6m while Ionica's non-executive chairman, the former Ofgas director-general, Sir James McKinnon, will receive 175,000 share options which are showing a pounds 455,000 profit at the offer price.

Ionica is also raising a further pounds 300m in loans through a debt facility backed by three banks and its equipment supplier, Northern Telecom. In total, Ionica will have invested pounds 1.1bn by the time its network is complete in 2001 and coverage reaches 80 per cent of the country.

The flotation price is 40 per cent below the valuation put on Ionica by its financial adviser and main sponsor to the offer, SBC Warburg, on a discounted cashflow basis. It is also pounds 200m less than the valuation estimated by Northern Electric when it was attempting to fight off the CalEnergy takeover bid last year. Northern has a 4.6 per cent stake in Ionica.

But Mr Playford said it was important to be cautious: "Although we have started well this is still a relatively new business. In the past the cable companies overvalued their international offers and shareholders in those businesses have paid the price."

Ionica has been offering a telephone service since June last year and has 22,000 customers in its two launch areas, East Anglia and the Midlands. It is aiming for 7 per cent of the market - 1.2 million customers - but says it will be profitable with just 4 per cent of the domestic market.

Mr Playford said Ionica's competition was BT, not the cable companies, and Ionica had no plans to launch entertainment services over its network. Ionica is offering to connect BT customers for a fee of just pounds 10, provided they agree to pay their bills by direct debit, and guarantees to undercut BT's tariffs by 15 per cent and its standing charge by 20 per cent.

Ionica claims the cost of building out a national network will be pounds 15- pounds 30 per home passed compared with pounds 600 per home for the cable operators. and says it can recoup the cost of connecting up customers in two years.

The public offer will result in 23 per cent of the company being floated but Ionica has not ruled out linking up with a strategic overseas partner in the future which would involve a further hand-out of equity.

None of the existing 350 institutional and individual shareholders is selling shares in the offer and a group of its largest shareholders, led by Yorkshire Electricity with a 14.5 per cent stake, have agreed not to dispose of any of their holdings for 12 months.

There will be 14 million share options in circulation after the flotation, of which 3.8 million will be held by private investors other than employees. One of these is the Boots chairman, Lord Blyth, who has 20,000 options showing a pounds 44,000 profit.

An international roadshow for investors in the UK, Europe and the US will take place over the next fortnight and dealings are due to begin on 18 July.

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