Trade Me sale good for both parties
Opinion & Analysis
OPINION: The best thing about the A$616 million disposal of Trade Me shares by Fairfax is that it won't change much at Trade Me.
The second-best thing is Fairfax makes a hefty profit and walks away with a tidier balance sheet.
Even after its acquisition by Fairfax in 2006, Trade Me operated in a little bubble of its own. The big Aussie corporate didn't interfere much and didn't weave the online auctioneer into the rest of its business.
As it turns out, the approach has worked well for both parties.
Fairfax has been able to flick Trade Me cleanly for big bickies. Having paid $750m for the business, last year Fairfax took out a $220m dividend, followed by $363.5m through the initial public offer of a 34 per cent stake and $166m from the transfer of debt to the New Zealand company.
After taking out $750m last year, Fairfax got $205m from selling a further 15 per cent, followed by about $770m from yesterday's sale of the remaining 51 per cent.
So that's about $1.7b from a $750m investment. Not bad. And given Trade Me was not a core part of Fairfax's operation, it makes sense to take profits from a sale while the valuation is high and there are buyers aplenty in the market.
Meanwhile, Trade Me has grown into a substantial company well capable of looking after itself. This year it made a profit of $75.6m, paid a 7.8c dividend and is on track to hit prospectus forecast earnings for the six months to December.
As a result, Trade Me will go forth as an important, top 10 member of the NZX with a wide spread of shareholders.
That's good for Trade Me, good for the market, and good for Fairfax.
- Fairfax owns stuff.co.nz