Trade Me in trading halt as sale confirmed
RICHARD MEADOWS AND FIONA ROTHERHAM
Fairfax Media has confirmed that it is selling its majority stake in online auction house Trade Me.
In a statement to the stock exchange this morning, Trade Me said it had been advised that Fairfax Digital Holdings NZ Limited had entered into an agreement with an investment bank - understood to be UBS - for the sale of its remaining 51 per cent stake.
UBS was yesterday busy placing the offer with Australian and New Zealand institutions to try and get the deal wrapped up quickly.
However, Trade Me shares were placed in a trading halt this morning here and across the Tasman with the book build still underway.
While Fairfax was understood to be divesting its stake in Trade Me for the purposes of repaying debt, it may also be looking at new online investment opportunities.
The Australian Financial Review reported the company was finalising details for a new partnership with netus, a technology investment firm run by former Microsoft executive Daniel Petre and former head of eBay in Australia and New Zealand, Alison Deans.
Petre and Deans would be responsible for identifying new digital opportunities for the group.
Allocations of Trade Me shares have not yet been revealed, though industry sources said there was strong demand for the stock on both sides of the Tasman.
The bulk is expected to go to Australian institutions which have a strong appetite for investing in online operations, with only an estimated $150 million or so of the $810m deal coming from this side of the Tasman.
UBS was offering a tempting price of A$3.05 per share (about NZ$3.80), a discount of 24c on Trade Me's New Zealand closing price on Friday of $4.05 and A17c to the Australian close.
Matthew Goodson, from BT Funds Management, which already has a small stake in Trade Me, said his firm was interested in taking up more but it came down to "different views on valuation".
"It has not escaped the market that the company is performing very well. We'll have to make a call on the future growth prospects of the company."
Trade Me has proved a good investment for Fairfax. It bought the online company from founder Sam Morgan and his fellow private investors for $700m in 2006 and then recouped $364m by selling a 34 per cent stake through its initial public offering in December last year.
Then in June, it sold down its holding by a further 15 per cent at a discounted price of A$2.70 a share. The proceeds of those two sell-downs contributed A$421m towards Fairfax's reported debt reduction of A$574m to A$914m in the last financial year.
The sell-down has come about six months earlier than anticipated, said one industry source, but Fairfax was "obviously in a difficult financial position with a lot of debt, and Trade Me is their last remaining valuable asset to sell".
The AFR reported that Fairfax's largest shareholder, mining magnate Gina Rinehart, gave the sale her seal of approval yesterday, having previously lobbied the board to sell off assets.
He said people want to invest in resilience in times of global uncertainty and a strong brand such as Trade Me was sought after. Senior Fairfax executives are said to have the view Trade Me is relatively mature in New Zealand where it sells cars, jobs, real estate and general goods online.
Industry sources here, who did not want to be named because of confidentiality agreements around the sale, have contradictory views on its future growth, with most keen to buy into one of the country's most well-known brands.
One funds manager said "while the business is mature that doesn't mean it won't provide good cashflows and dividend yields".
But another industry source was more gloomy saying Trade Me was now "as good as it is ever going to get". He predicted it would not be a long-term hold for many of the Australian institutions who would buy in now simply for the market discount on offer before reselling and that Trade Me's share price would quickly slide back towards the current offer price.
The sale stops Fairfax benefiting from a tidy source of digital earnings at a time when traditional print-market advertising is down. In its full-year financial results, Fairfax reported a net loss after tax of A$2.73 billion following a massive writedown.
* Fairfax Media owns Stuff.co.nz and The Australian Financial Review.