Ihug becomes Force of entertainment

By MICHAEL FOREMAN

Internet company ihug is poised to merge with cinema and property giant Force Entertainment in a deal that values the internet service provider at $120 million.

Stock Exchange-listed Force will issue 210 million shares as payment for 100 per cent of ihug and will rename itself Ihug Limited (with a capital I).

"Ihug is becoming an entertainment company," said Ihug managing director Nick Wood.

"The net is already an entertainment market - the people who surf the net also watch pay television and go to the cinema."

Of the sale price, $100 million is understood to represent the worth of the company's retail internet business, with 65,000 New Zealand and 35,000 Australia-based subscribers at $1000 per head, with the balance being the value of ihug's digital television and wholesale internet operations.

The deal will be effective from April 1, subject to approval by Force Corporation shareholders who will vote at an extraordinary general meeting late next month.

Ord Minnett Securities analyst David Wallace told Bloomberg that the price Force is paying for ihug customers compares favourably with the $A950 ($1220) a customer paid by Telstra for internet customers in Australia.

But Mr Wallace said the strategy ahead for Ihug was not immediately clear. He said the real value in the internet was delivery speed and content. The merger with Force "doesn't give anyone speed, nor much in the way of content."

Mr Wood said the company was now looking to make further acquisitions of content-based companies. He would continue to run the internet operations while Derek Presland, chief executive of Force, would run the cinema side.

A previous offer by Sky Television to buy 30 per cent of ihug for $30 million last year fell apart before the legalities had been finalised.

If the Force deal goes ahead, the Wood family would become significant shareholders in the merged company and multi-millionaires on paper.

The "family interests" of brothers Nick and Tim, and their father John Wood, yesterday owned 82 per cent of ihug, a shareholding worth $98.4 million at the sale price. However Force shares climbed 7c yesterday to close at 85c, which would value the Woods' 47 per cent holding in the merged company at over $146 million.

The other shareholders in ihug are Bart Kindt, former owner of Christchurch-based ISP ESNet, acquired by ihug in 1996, who holds 8 per cent - and Tappenden Holdings, with 10 per cent. Tappenden is owned by Alan Gibbs and Trevor Farmer, who completed their purchase of 10 per cent of ihug only yesterday.

"There is a certain amount of cash in the business and so we will need no market assistance to start our plans," Mr Wood said. The new company would begin with an "acquisition phase" and would buy internet service providers, boosting its customer base by about 20,000 subscribers on both sides of the Tasman.

The chairman of the merged company will be former executive director of Lion Nathan, Mike Smith. Other directors will include Tim Wood from ihug, and Peter Francis who is at present chairman of Force. Also from Force will come Mike Daniel and Mr Presland, while Rob Campbell will represent Tappenden Holdings.