Homechoice set to merge with Tiscali

Chris Larson, the majority shareholder in Video Networks, is set to recoup some of his near £100m investment in television company Homechoice as a merger with the internet service provider Tiscali looks increasingly likely.

Mr Larson, who also co-founded Microsoft, is thought to have ploughed millions into the video-on-demand start-up.

The Homechoice business owned by Mr Larson and other shareholders including Time Warner, Sony and Disney, is likely to be valued at about £100m.

According to reports, Mr Larson is expected to receive a stake of more than 10 per cent of the equity of the combined company, which could rise toward 20 per cent if growth targets are met. Given that Tiscali UK is valued at between £500m and £600m, Mr Larson's shareholding in the combined group could be worth between £60m and £70m initially.

A deal to combine the two companies could provide Homechoice's sub-scale business with access to Tiscali's 1.1 million UK internet users. Homechoice has struggled to gain market share in the UK as it competes against satellite television giant Sky as well as the cable company NTL.

Homechoice still had only 45,000 users at the end of June, despite expanding its network over the past year, and the company faced a funding crisis.

Tiscali UK is part of the large European Tiscali internet network. The company was founded in a Sardinian basement during the 1990s but quickly built itself into one of Europe's largest internet companies. Yet with companies such as Sky, Orange and Carphone Warehouse entering the broadband market and offering bundled services, Tiscali may need to offer more than broadband access to maintain its 10 per cent market share.

Tiscali had been linked with a takeover by O2, which decided to buy Be Internet, as well as Vodafone, which looks more likely to sign a wholesale agreement with another telecoms company.