Italians in £3.6bn takeover of World Online

The consolidation of Europe's online sector gained pace yesterday when Italian internet service provider Tiscali sealed a 5.9bn euro (£3.6bn) all share takeover of the troubled Dutch ISP World Online.

The consolidation of Europe's online sector gained pace yesterday when Italian internet service provider Tiscali sealed a 5.9bn euro (£3.6bn) all share takeover of the troubled Dutch ISP World Online.

The new group will have a market capitalisation of 12.5bn euros and a cash mountain of 1.6bn euros inherited from World Online's disastrous March flotation. With 3.5 million active subscribers, it will rank as Europe's second biggest ISP after Deutsche Telekom's T-Online.

James Kinsella, the chairman of World Online who will be chief executive of the new company, said: "We are establishing a single European platform with multiple services. That's a very powerful vision we share."

Unlike most internet groups, Tiscali, while only the third largest ISP in Italy, has a substantial telecoms network division. Mr Kinsella said the enlarged group will have more network interconnect points than any European telecom operator or ISP.

Analysts said the merger makes sense for both groups. World Online will be rebranded and perhaps distanced from the controversy that dogged its market debut. Its shares crashed shortly after floating in Amsterdam when it emerged that its chairman, Nina Brink, had sold most of her holding ahead of the initial public offering at about $6 per share, well below the 43 euros per share listing price.

Tiscali gains a much-needed cash injection at a time when Net companies are finding it difficult to tap public markets for new funds. The deal will also give the Italian group exposure to faster- growth northern European markets where Net penetration has outpaced that found in the south.

Tiscali shareholders will own between 53.8 and 58.5 per cent of the company. Investors controlling 63 per cent of World Online have already approved the deal. Renato Soru, the Italian group's chief executive and chairman designate of the new group, will emerge with a stake of about 35 per cent.

Mr Kinsella said the merger would allow cost savings of up to 600m euros through to 2002. The new company expects to break even in the second half of 2001.

The enlarged group had pro forma sales of around 165m euros for the six months to June. Operating losses for the period were 196m euros.

Shares in both companies, suspended ahead of the deal announcement, will resume trading today.