BERLIN -- In a deal that could box
out of Europe, Germany's
, the region's largest Internet service provider and a unit of
( DT), is reportedly considering a $9 billion bid for the U.K.'s
As the speculation of an Anglo-German Internet alliance continued Tuesday, T-Online rose 0.65 euros, or 1.7%, to 38.40 in Frankurt. Freeserve jumped 94 pence, or 24.4%, to 486 in London on Tuesday, and its ADRs in New York closed up 15 1/2, or 27.4%, at 72.
The Sunday Times of London
claims Deutsche Telekom was considering offering as much as 650 pence ($9.70) per Freeserve share.
According to reports, Deutsche Telekom hasn't yet entered exclusive talks with British retailer
, which controls Freeserve. But DT
CEO Ron Sommer
is likely keen to do so, as acquiring Freeserve would allow him to finally make good on his promise to strengthen T-Online's position internationally, which is poorly represented outside Germany.
Should the deal come to pass, T-Online could become a dominating force in Europe's two largest Internet markets. Such a partnership would command around 8 million customers -- more than double the number AOL Europe presently has. Moreover, a combined T-Online-Freeserve could help stave off any potential challenge from Spain's ambitious
( TRRA), which recently announced its intention to team up with U.S. Web powerhouse
Although AOL Europe has never presented a real challenge to T-Online in Germany, T-Online's limited presence outside of its home market has kept it from being taken seriously as an international contender. The acquisition of France's
earlier this year was Sommer's first major attempt to help T-Online establish itself outside of the German-speaking world. A deal with Freeserve would clearly be of a completely different caliber.
Besides gaining Freeserve's strong position in the U.K., T-Online would gain important access to the English-speaking Internet world, just as Terra Networks hopes to do via Lycos. A merged T-Online-Freeserve could then hope to use its combined clout to make acquisitions or forge partnerships in other key European markets as well as possibly further afield.
But some observers think the price tag currently being bandied about for Freeserve is far too high.
"Is Freeserve a nice acquisition conceptually for T-Online? Yes," says
an analyst for
Schroder Salomon Smith Barney
in London. But "everything is a function of price (and) T-Online is not realistically going to pay six pounds fifty per share." Schroder Salomon Smith Barney does not have an underwriting relationship with Freeserve.
Still, T-Online may not be the only shark circling around Freeserve. Reports also have U.K. cable operator
( NTLI), which is partly owned by
, mulling a possible bid. Were Deutsche Telekom to lose out in a bidding war for Freeserve, T-Online's pan-European plans -- not to mention global aspirations -- might be made more difficult, but Richards thinks for a whopping $9 billion DT could do better in the U.K. on its own.
AOL also appears set to go it alone in Europe for the time being.
pulled out of AOL Europe this spring following AOL's merger with the German media company's rival
. French conglomerate
has reportedly expressed interest in exiting AOL France as well.
At least domestically, T-Online would appear to have little to worry about. The ISP recently announced it would implement a monthly 79 marks ($36.83) flat-rate fee for unlimited access, which is likely to harm AOL Deutschland as well as many smaller service providers which are still obliged to charge metered rates for local phone calls.