Japanese Pay £180m for Ringtone Specialist Itouch

A gamble on the fledgling ringtones market paid off handsomely for Independent News & Media yesterday when the newspaper group reaped a €75m (£51m) profit on the sale of mobile content company iTouch.

Japanese firm For-side.com said yesterday it would buy its British rival in a £180m deal as it seeks a foothold in the European market. Initially dismissed as gimmicks, mobile ringtones have become the bane of passengers on public transport but a key feature of a wireless content market that is worth £400m in Britain alone.

Dublin-based Independent News & Media, publisher of the Independent newspapers, said it would receive €100m for its 37% stake in the company.

Ivan Fallon, iTouch chairman and a senior INM executive, said iTouch had to choose between being predator or prey in a consolidating market. Non-voice mobile content generated global revenues of £34bn last year.

"This is an iTouch-driven deal and not an INM-driven deal," he said. "The iTouch management was aware that it had to grow very rapidly or be taken over. They felt that the best thing for the company was to go with that offer and INM decided not to stand in the way."

Mr Fallon added that the corporate giants of new media have expressed an interest in mobile content and might launch a further wave of takeovers once the present phase of consolidation is over.

"There is no question that people like MSN and Google want to get into this area but they will be waiting for it to become a significant-sized business. We know this because they have talked to us about it," he said.

INM said the proceeds would be invested in paying down debt and in its newspaper portfolio, although Mr Fallon would not be drawn on investment plans for the Independent, which underwent a redesign recently. Any spending plans at INM, which owns more than 200 titles, including the Irish Independent, would be well covered by the group's balance sheet following a financial restructuring two years ago, he added.

"We are not exactly short of a bob or two," he said. "If we wanted to invest even more we could. It does not alter the picture. It strengthens the financial position of the company and it's a nice windfall really."

For-side said it was offering 44p a share for iTouch, a 27% premium on the closing price of 35p on Wednesday. Since it launched 10 years ago, iTouch has become one of Europe's largest mobile content companies, offering games, news updates and phone voting as well as ringtones. It made revenues of £78m last year, up from £60.3m in 2003.

"The acquisition of iTouch ... marks a major step towards our goal of becoming the pre-eminent global provider of mobile digital content," said Yukinaa Ajima, president of For-side.

The range of mobile content is expanding rapidly as wireless technology develops. Text messages were a surprise growth product at the beginning of the decade, followed by an explosion in demand for ringtones and digital "wallpaper" for handset screens. The next generation of content for 3G phones, which can carry music downloads and video clips such as football highlights, is expected also to feature gaming and gambling.

Matthew Pearson, analyst at Investec Securities, said £180m was "a fair value for the stock".

He added: "It will give For-side a stronger European foothold; iTouch is the dominant player in Spain and has a strong European presence. There is no surprise For-side acquired them. It reiterates our confidence in the space."