The Toronto Star
Tuesday, November 11, 1997

U.S. Internet firm seeks iStar for $35 million

by Robert Brehl

Canada's one-time online darling, iStar Internet Inc., could be gobbled up by an American firm for a mere buck and a bit per share.

Psinet Canada Ltd., a unit of Herndon, Virginia-based Psinet Inc., yesterday offered $1.20 a share in stock for a total purchase price of $35 million.

IStar's board has recommended the takeover bid to shareholders and the deal would not have been announced if it were not going to happen, Nadir Desai, president of Psinet Canada, told reporters yesterday.

The purchase of iStar, which has about 60,000 dial-up customers and 1,000 business clients, reflects the consolidation of North America's Internet-access industry.

But how far iStar has fallen.

In November, 1995, iStar shares jumped 83 per cent to $22 during the first day of trading from the initial public offering price of $12.

``IStar just couldn't seem to get their act together'', said Jim Carroll, an Internet consultant. ``You heard president Craig Wallace say they wanted to go after the business customer, which basically said to dial-up customers that they didn't count.

``They screwed up.''

Desai said Psinet will offer iStar customers all sorts of new services; including global roaming so they can check E-mail messages in 350 cities starting today without incurring long-distance charges.

Clearly, as the Internet matures, big seems to be the growing trend.

Earlier this month, Netcom Canada, a unit of Netcom On-Line Communication Services Inc., bought 12,000 subscribers from HookUp Communication Corp.

A flurry of large industry mergers and acquisitions has already taken place in the United States.

``The market seems to be separating itself into successful companies who have the capability of growing but don't have access to capital to grow'', Psinet executive vice-president and chief operating officer Harold Wills said.

``Those companies are looking to consolidate with telephone companies or other folks like ourselves who are able to have the capital available.''

The acquisition is conditional on Psinet reaching an arrangement with Bell Canada, which provides iStar with global computer-network services.

Bell received an option in July to buy 25 per cent of iStar after it agreed to provide the company with $20 million of services during the next 18 months.

with files from Star wire services

Copyright © 1997 by The Toronto Star. All Rights Reserved. Reprinted with permission.