Wanadoo said yesterday it was buying Freeserve in a €2.6 billion (£2.05 billion) all-share deal that will fuse the biggest French and British Internet service providers into one of Europe's top three.
Wanadoo is offering 0.225 new shares for each Freeserve share, valuing its prey at 157p a share, or just over £1.6 billion - a premium of about 11 per cent over Tuesday's market prices.
The deal will achieve Wanadoo's aim of becoming a leading pan-European ISP while enabling cash-strapped Freeserve to pool investments with its richer French peer in order to develop mobile services and add content.
Shares of both companies fell, however, as Freeserve investors were disappointed about the premium paid and Wanadoo investors were concerned a flood of shares would hit the market.
British retail chain Dixons, whose four-fifths ownership of Freeserve becomes 12 per cent of Wanadoo, fell nearly 7 per cent to 234p after the no-cash deal.
Wanadoo said the combined company would have 4.5 million active subscribers across Europe, putting it second to Germany's T-Online, Europe's biggest ISP. Italy's Tiscali is the continent's other big player.
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