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Vonage weighs up possible sale

Vonage, the private internet telephony start-up, is being encouraged to consider a sale while it presses ahead with plans for an initial public offering.
/ Source: Financial Times

Vonage, the private internet telephony start-up, is being encouraged to consider a sale while it presses ahead with plans for an initial public offering.

UBS and Deutsche Bank, the investment banks chosen by Vonage to underwrite its stock market listing, have been suggesting that the company pursue a "parallel process", according to people familiar with the matter.

This would involve seeking out, or responding to, expressions of interest in the company from potential buyers while at the same time moving forward with plans to raise up to $600 million in an IPO.

Last week Skype, which also offers Voice over Internet Protocol, or VoIP, technology, agreed to a takeover by Ebay, the online auction site, for $2.6 billion - a price widely viewed as high.

That deal has lead to suggestions that Vonage could also fetch a generous valuation in a sale. Analysts have estimated that Vonage, based in New Jersey, is worth between $1 billion and $1.5 billion.

It was unclear on Wednesday night how open Jeffrey Citron, Vonage's chief executive, was to selling the company, which is 2½ years old and recently signed up its millionth paying customer. Citron could not be reached for comment.

Vonage might be attractive to a host of companies in the telecommunications, media and technology industries. According to Wall Street bankers, cable groups such as Time Warner and Comcast, as well as traditional telephone carriers such as Verizon might consider acquiring it.

The pressure on Vonage and other independent VoIP companies such as Packet8 to consider trade sales comes amid a spate of announcements and deals in the fast-evolving broadband internet telephony market. Yahoo, Google and Microsoft have all made VoIP service announcements in the past few months.

This week, America Online and Earthlink have announced plans to offer VoIP services. Qwest Communications, the fourth largest U.S. regional telecommunications group, and Microsoft announced plans to start marketing a VoIP service targeting small companies on Monday.

Established U.S. cable companies have begun to aggressively market their own broadband telephony, raising the profile of VoIP and effectively endorsing the technology that underlies it.

Early VoIP services were faulted for their often poor quality and unreliability but rapid technological advances and other changes have transformed VoIP into a service ready for the mainstream.

Vonage has pioneered so-called second-generation VoIP services, which allow users to make calls over the internet using a standard telephone plugged into a broadband adapter.

This success, coupled with the Skype sale, has attracted the attention of established communications companies, many of which have been holding back on VoIP services because of concerns about cannibalizing their traditional circuit-switched voice revenues.

UBS and Deutsche declined to comment.