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Carburton Street, London -- The game's up for Freeserve (LSE: FRE). This morning, French ISP Wanadoo announced that it is to buy its UK cousin in an all-paper deal. The nitty-gritty of the deal is that Freeserve shareholders are to receive 0.225 Wanadoo shares for each Freeserve share held. There's no cash or loan note alternative. Where Next?
So, what now for Freeserve investors? Undoubtedly, most will be asking themselves whether they wish to hold shares in an unfamiliar foreign business. The answer is probably not. Thus, the dilemma for ordinary Freeserve investors is this -- do you sell your holding now or hang on until after the conversion?
For those thinking of promptly bailing out, you'll have to face the fact that you'll be selling at a fairly significant discount to Freeserve's theoretical "fair value". After Wanadoo returned from its stock market suspension this morning, its shares rose 0.1 euros to 11.5 euros. In theory, that price gives Freeserve a value of 158p per share. But with nobody else wanting to hold Wanadoo paper and busy Freeserve selling too, Freeserve shares currently languish around the 137p level.
Alternatively, for those who are galled at the current 14% discount, holding on until after the deal completes may prove worthwhile. And although the newly issued Wanadoo shares will only be listed on the Premier Marché in Paris, help is at hand for those wanting to promptly dispose of the French paper. Wanadoo is to implement a low-cost dealing facility for the new shares and will "endeavour to put arrangements in place" so the new shares can be settled via the UK CREST dealing system.
Smart money
Indeed, if you're thinking of disposing of your Freeserve or Wanadoo shares, you could be joining the "smart money". A good indication of what action to eventually take comes from Freeserve's parent, Dixons (LSE: DXNS). Its 80% ownership of Freeserve will ultimately convert into 12% of Wanadoo, and although today's proposal puts in place various lock-up agreements, some of the small print is quite revealing.
Contained deep with the lengthy offer statement: "Dixons intends to reserve a pool of Wanadoo Ordinary Shares as part of a long-term incentivisation plan for Dixons employees which will encourage the development of the working relationship between Dixons, Wanadoo and Freeserve. Senior executives of Dixons will not be awarded Wanadoo shares, but will instead benefit from additional long-term arrangements involving Dixons shares."
If the senior executives of Dixons, who certainly know a thing or two about the European ISP industry, are not personally prepared to "benefit" from holding Wanadoo shares, then why should you?
• TMFEssex asks "Wanadoo-a-deal with Freeserve?"
• Freeserve discussion board
• Freeserve Duelling Fools -- the Bears were right!
• Full Offer Announcement
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