It's the content, stupid: Ihug, Force Corporation to merge

Ihug and the cinema and entertainment company Force Corporation have announced their intention to merge in a stock-only deal.

Ihug and the cinema and entertainment company Force Corporation have announced their intention to merge in a stock-only deal.

After the merger the new company will be known as Ihug Limited - effectively giving the ISP an NZSE public listing without need for a float.

The new company will sell off Force Corporation's property interests, including, in Auckland, its Mt Wellington retail development and the Force Entertainment Centre in Queen Street, to focus on its "core entertainment and Internet businesses," according to a statement released late yesterday.

Although Force was hailing the Queen Street centre as shaping up to become "the major entertainment destination not only for Aucklanders, but for tourists as well," in its report to shareholders last year, it now appears to see investment in the Internet as a way beyond the flat revenue growth from its traditional interests. Force's financial statements last year showed that both overall revenue and admissions to its joint venture cinemas actually declined slightly over the previous year.

Force chairman Peter Francis said yesterday that once the Force Entertainment Centre was sold, the merged group would be "debt-free and have substantial cash reserves to fund Ihug's growth."

The proposed transaction involves the issue of 210 million Force Corporation shares for 100% of Ihug. The deal was struck at a price of 57 cents per Force share and ascribes a value of $120 million to Ihug, which has about $4 million in cash reserves - equivalent to an enterprise value of about $1000 per subscriber.

Chairman of the merged company will be former executive director of Lion Nathan, Mike Smith. The other directors of the company will be Nick Wood and Tim Wood from Ihug; Peter Francis, Mike Daniel and Derek Presland who are existing directors of Force; and Rob Campbell representing Tappenden Holdings - the private investment company that moved yesterday to buy 10% of the shares in the original Ihug.

Ihug founders Nick, Tim and John Wood will hold a 47% share of the new entity, Tappenden 6%) and "other interests" - presumably including Bart Kindt, who became an Ihug director when the company bought his South Island ISP, Essential Software - 4%.

Ihug's CEO Nick Wood will continue as CEO of the Internet operations and Derek Presland will continue as CEO of the Force operations while the long-term management structure is put in place.

The deal is conditional upon Force Corporation shareholder approval at an Extraordinary General Meeting scheduled for late-March and will be effective from 1 April 2000.

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