Freeserve, Britain's biggest internet service provider, wants its main shareholder Dixons to cut its stake from 80% to 20%, and it intends to dilute the store's holding by making share-based acquisitions.
Nicholas Backhouse, Freeserve's chief financial officer, said yesterday that the "correct long term shareholding" for Dixons would be something like 20%.
After a briefing at the SG Cowen global technology conference in Cannes, he said Freeserve was looking at a number of deals that could dilute the Dixons stake. Last week Freeserve announced its first all-share acquisition of Intracus for £60m.
Intracus is a community website where various groups get together to organise events.
Mr Backhouse said Freeserve would prefer dilution of the Dixons shareholding to one of the other options, the sale of part of the Dixons holding to outsiders.
"Expect to see us doing a lot more deals like that [Intracus]. We will acquire all the things we need to acquire to significantly grow our market share and we will dilute them down."
One route for Dixons to cut its Freeserve stake would be to offer shares in the ISP to its own shareholders. It sold 20% of Freeserve last July.
However Mr Backhouse said this path would not see Dixons "make the most of the value" out of Freeserve. The surge in Freeserve's share recently - they hit a peak of 920p in March and closed at 545.5p yesterday - has finally given it the ability to use its stock to do deals.
Mr Backhouse said Dixons had the right to sell 40% of its Freeserve shareholding from August and the remainder 12 months later.
Freeserve has grown to be the largest internet service provider with about one third of the 7.8m estimated internet users in Britain. Mr Backhouse said it was "perfectly realistic" that Freeserve could come to dominate 50% of the British internet users market, but refused to give a time frame for this target.
The company is transforming itself from an ISP to a web portal similar to Yahoo! It is driving this strategy by seeking content deals and acquisitions.
This week it announced it had collaborated with Bar clays, Britain's second biggest bank, to offer financial services online to small business.
Freeserve last week reported a loss of £2.3m in the quarter ending February 5, while advertising revenue increased and subscriptions grew 50%. It is not expected to turn a profit until 2002.
Total revenue in the quarter was £5.1m, with 55% of that coming from e-commerce and advertising.
It signed 126 advertisers in that period. The company has also counted on increased revenue from telephone tariffs but fierce competition has caused Freeserve to give up its share of those revenues from telephone calls by offering a flat monthly internet access fee which starts next month.
This means it is faced with the battle of finding other ways of substituting that revenue which may come from the boom in online retailing in the next few years.
Fletchers Research predicts that British online retailing business will grow from €350m in 1999 to €5.9bn in 2004.
