Force unplugs its Ihug deal

By ROB O'NEILL

Sharemarket turmoil claimed a further victim yesterday, effectively ending Force Corporation's acquisition of internet service provider Ihug.

Last Friday, EstarOnline cancelled its intended float, but eVentures says its $30 million public offering will go ahead.

An extraordinary meeting of Force shareholders yesterday did not consider two resolutions necessary to seal the merger with Ihug. Instead they chose to postpone their consideration of the matter until May 15.

But the contract with Ihug shareholders expires on Thursday and yesterday it appeared those shareholders were not open to a renegotiation.

Ihug managing director Nick Wood told the Business Herald he had made it clear to Force that "the deal was the deal."

"We will have a meeting to see if there is anything to discuss. But it's clear from today what the outcome will be."

He said it was hard to blame people for backing away when 25 per cent had fallen off the Nasdaq in three days.

"If we had held this meeting on Wednesday last week we wouldn't be having this discussion now."

Force chairman Peter Francis denied that any particular group of shareholders had prompted the postponement move. He said shareholders in general wanted to reassess the situation.

"It was a prudent thing for shareholders to ask."

When told of the reaction from Ihug's directors, that the deal was effectively dead, Mr Francis said that was their call.

"Events have certainly changed the value of certain internet companies. I don't know if Ihug was one of those."

Ihug director John Wood said he did not believe the meltdown in sharemarket values over the last few days had affected the value of the company's business.

"We don't think the value of the business has changed significantly. It's a business, not a piece of puffery."

Ord Minnett senior investment analyst Arthur Lim said even two or three months ago there would have been any number of suitors for Ihug.

"What we have seen with the shakeout is it is fairly clear that some internet sectors have been faltering.

"I think what's happening here, especially with the advent of free internet access here, is a change of mind more on the part of the Force executives than from Ihug."

He said the per-subscriber base on which internet service providers were valued had changed to accommodate lower subscriber values due largely to increased competition.

Mr Francis denied that the arrival of free internet access providers was of concern.

Nick Wood predicted that the change in value of technology stocks was not long-term. However, perceptions of value were clearly up in the air.

He said Ihug would revive discussions with other parties, though he would not specify who these were.

A back-door listing was now unlikely in the short term at least. So was a separate listing.

In the meantime, the company had enough money in the bank to complete its own immediate growth plans.

He said Ihug would soon make an announcement of its own that would deliver some of the perceived benefits of the Force deal and put the cost of the deal at about $100,000.

On February 8, Force agreed to acquire Ihug subject to shareholder approval. Force was to issue 210 million shares at 57.14c to gain 100 per cent ownership.

That would have valued Ihug at $120 million. The market reacted favourably to the deal, pushing Force shares beyond 90c at one point.

On Friday, Force shares closed at 60c. Yesterday, they were one among many, down to 48c.