MARKET COMMENT
Energis buys Ision

By Rob Davies
December 19, 2000

Carburton Street, London -- After the initial burst of creating and funding Internet companies it seems we are now moving into the second stage where new groups are formed as the industry consolidates and creates new alliances. Today's acquisition of a 75% stake in Ision by Energis (LSE: EGS) for 812m euros is a good example.

Energis started life as an in-house telecommunications network for the National Grid (LSE: NGG) using high capacity fibre optic cables slung from power lines. It quickly realised that the development of the Internet was creating massive demand for bandwidth, the ability to transmit a lot of data, and that its network was well placed to provide that. That led to a deal with Freeserve (LSE: FRE) to drive traffic on to its network and increase revenues. To capitalise on this business Energis created a new division, initially called Planet Online but now known as Energis Squared. The rate of growth in revenue from Internet and related activities can be seen in this table from its interim results.

Revenue (£m)
6 months ended 30/9     1999     2000

Internet and related  69,341  139,532

Clearly, it makes sense for Energis to do whatever it can to grow this business. And that is where the Ision transaction fits in.

No 1 webhoster in Germany

Ision is Germany's No 1 independent business webhosting company hosting about 800 sites, including eight of the top media companies and three of the top banks. As a result of this premier position it accounts for 23% of page views in Germany and generated 66.7m euros of revenue in the first nine months of this year, well up on the 40.9m euros generated the year before. On the basis of these numbers Energis is paying 12.2 times historic sales, a racy valuation by most standards. Nevertheless, as a result of this deal the enlarged Energis will have 5,000 km of national network in Germany, 14 data centre sites and 200 direct sales staff. This is just the sort of bolt-on acquisition that Energis needs to maintain its heady growth rate. And using its highly rated shares in the part cash part paper deal is an excellent way of achieving that.

A very German deal

An interesting aspect is that this partial acquisition is something that could not have been done in the UK. Here, any offer to more than 29.9% of a company's shareholders must be extended to all on the same terms. But Ision is a listed Germany company with 73% of its shares held by Distefora. That makes acquiring a majority holding, and control, fairly easy to do and at a modest price. In fact the price paid of 55.21 euros is only a 10.4% premium to the previous day's closing price. Moreover, Alexander Falk, the Chief Executive, is also selling his shares to Energis as part of the deal to take its total stake to 75%. Minority shareholders in Ision are therefore getting no chance to participate and, having watched the share price fall from 130 euros in April to around 48 euros now, are probably quite envious of Falk's exit. This difference in the treatment of minority shareholders is one of the many that exist between the London and the European stock markets and explains why cross-border mergers of exchanges are so complex.

While this local feature may disadvantage German shareholders, it does enable Energis to buy this company on the cheap -- well, relatively cheaply anyway.

Where Next?

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