Tiscali declares interest in Pipex broadband

Tiscali has emerged as a potential bidder for the broadband rival Pipex after Massimo Cristofori, the Italian company's chief financial officer, revealed that it is in early-stage talks with its UK competitor.

Pipex has attracted interest from larger companies since Peter Dubens, the entrepreneur who has built up Pipex through a series of acquisitions, launched a review in January.

A successful marketing campaign using the former Baywatch star David Hasselhoff and the shirt sponsorship of the Premier League football club Fulham have helped to boost the company's numbers and it said yesterday that it will offer six months of free broadband access to new subscribers to its voice and internet packages.

Pipex has about 570,000 broadband customers, making it the UK's sixth-largest broadband provider. However, the company also has a significant internet hosting business that has deterred some potential bidders, with BT and Carphone Warehouse said to have pulled out of the bidding as a result.

Tiscali has 1.5 million broadband customers in the UK and bought Homechoice, the on-demand television provider, last year to broaden its product range. A combination with Pipex would create a top-five broadband competitor, trailing BT, Virgin Media, Orange and Carphone Warehouse, which bulked up last year with the purchase of AOL's UK business.

Mr Cristofori said that preliminary talks with Pipex had taken place but no price had yet been discussed. "Pipex has started the procedure of an eventual sale and it has sent us their dossier," he said.

The Sicilian internet provider secured a €280m (£191m) financing deal in February, providing it with the firepower to complete an acquisition of Pipex.

However, Tiscali's appetite for the whole business is uncertain with analysts predicting a break-up. Goldman Sachs estimated that Pipex's broadband and telecoms business was worth £211m if Tiscali pays about £300 a customer and attributed a £178m valuation to the hosting division. The company has a market valuation just shy of £320m.

Andrew Darley, an analyst with KBC Peel Hunt, said a break-up of the company looked likely if Tiscali bought Pipex with the hosting business sold on to a rival in that sector such as FastHosts or Iomart.

He said valuing the company's WiMax licences was very difficult as the mobile broadband technology is yet to be proved in a commercial setting. "That's the ace in Peter Dubens's pack," he said.