ScottishTelecom is on the verge of acquiring Demon Internet, which claims to be the largest British-owned internet service provider with more than 175,000 customers. Negotiations between the two companies on a $105m deal are at an advanced stage and details of a take-over are expected by the end of this month. ScottishTelecom is a subsidiary of Scottish Power, an aggressive utility that expanded into telecoms using a fiber-optic backbone inherited from the former state-owned National grid, and has national ambitions. A deal with ScottishTelecom would snatch Demon from under the nose of British Telecommunications Plc which was reported to be engaged in take-over talks earlier this month and may have made a substantial offer (CI No 3,382). But Cliff Stanford, Demon’s founder and chief executive, told the Financial Times. This is not the best deal we have been offered in financial terms, but it is the right fit. He said the two companies had similar views on the telecommunications industry and wanted to take part in the data communications revolution. Stanford, who formed Demon in 1992 and owns half the equity, said Demon would benefit from Scottish Power’s financial muscle as it expanded in the UK and Europe. A big attraction for ScottishTelecom is that half Demon’s revenue comes from business customers for whom it offers leased lines and web hosting services. Corporate users also account for 40 percent of Demon’s dial-up customers. Demon claims to have been profitable every year since its formation and, given his power to veto any deal, Stanford is in no hurry to sign an agreement until he is satisfied on terms. Around 300 if Demon’s 520 employees have been promised a cash payment to compensate them for loss of stock options. One intriguing possibility if the merger goes ahead is the potential to exploit the new technology announced last year which enables internet access via electricity cabling at speeds up to ten times faster than analog modems (CI No 3,263). The system was developed by Canadian telecoms equipment manufacturer Northern Telecommunications Ltd has and UK company Norweb Communications Ltd, a subsidiary of the Utilities holding group United Utilities Plc. Whatever happens, the proposed merger is another blow to British Telecommunications, shut out from another important deal and as a result will face even more intense competition.
