Should Fairfax sell Trade Me to Ebay?
Some history: Fairfax is a large Aussie media conglomerate that bought NZ's biggest e-commerce and auction site, Trade Me in March 2006, for a whopping NZ$700 million. That figure that hade some observers gasping and wondering if the calculator of the then CEO David Kirk had a decimal point transposing bug.
At the time, the deal seemed to make sense despite the vast amount of money Fairfax paid. Trade Me had gained critical mass in New Zealand, and was eating print media's lunch in the classifieds market. It was better to buy out the opposition, perhaps, even though Trade Me would continue to cannibalise the advertising revenue of other parts of the Fairfax group.
That was then however, and times are very different now. Fairfax is said to have A$2.5 billion in debt thanks to a massive acquisition spree and needs to reduce that amount to keep bankers and shareholders happy. Why not sell Trade Me then, to Ebay, that tried to get into the New Zealand market before, but failed (I believe due to the lack of support for local currency deals) and which is established and entrenched across the pond?
I've asked Trade Me already if there's any truth in the rumours that a sale to Ebay is on, and was told "yeah, right". Not a confirmation, not an outright denial in other words.
Does Fairfax have any other choice than to sell Trade Me, if it wants to reduce its huge mountain of debt? Trade Me is probably worth around twice what Fairfax paid for it two years ago, depending on how a potential buyer reads the market prospects and of course, how desperate the Aussie media giant is.
It would be hard for Fairfax to sell Trade Me to Ebay (or someone else) however. Trade Me owns the "rivers of gold" classifieds, property, motoring and jobs advertising markets in New Zealand and it's difficult to see how Fairfax could replace the lost revenue from those.
So, would it make sense for Fairfax to sell Trade Me?
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Comment by ockel, on 29-Jan-2009 17:24
I think many observers (inside and out) of the newspaper industry would dispute that TradeMe owns the "rivers of gold". Undisputed heavyweight champion of traditional "For Sale" but jobs, real estate and motors is extremely doubtful on a revenue or share basis.
As for 2x Fairfax acquisition price - Fairfax should grab the cash and laugh all the way to the bank. Agreed that TradeMe has grown significantly but financial market multiples have fallen significantly. Fairfax has already torn up cash with its Southern Star debacle so breaking even on TradeMe wouldn't be a bad outcome.
Comment by Fraser, on 29-Jan-2009 19:19
The way newspapers have been going overseas I thought Fairfax would be better off to sell their newspapers and keep TradeMe. Maybe they couldn't get any buyers though. :)
Author's note by juha, on 29-Jan-2009 20:34
As one wag put it on twitter:
"I think you all have the story confused...should be, Trademe is selling Fairfax on eBay."
Comment by kent, on 30-Jan-2009 08:56
Why would they sell a massively profitable part of the business to reduce debt? It would make sense to keep it to reduce debt.
Perhaps they have increased it's market value since buying it and stand to make a profit on the sale? No, I believe in todays market, they would make a loss on the sale.
Of course if , Ebay made an offer they couldn't refuse .... maybe
-KENT
Comment by David MacGregor, on 30-Jan-2009 18:02
I think one of the advantages of Trademe is that is a cash business - generating wadges of cash - with no bad debts, risks or collection costs. Modest overheads and no distribution issues. Work it out for yourself.
Comment by Steven, on 2-Feb-2009 11:15
If they can get 1.4bn and get rid of 2/3 of their reported debt, then it makes a compelling case to sell.
My understanding when it was sold for $700m that the price equated to a dozen years worth of projected profit.
Fairfax may not be able to avoid selling it if the ROI is another 10 years away
Comment by robbo, on 4-Feb-2009 22:33
bring on e-bay.
Trade Me is beginning to get cluttered and full of items that are unscrupulous at best.
Trade Me is good but it is getting bogged down by the inexperience of the people running it, in the sense that it is just getting too big too handle and will eventually collapse in on itself.
Get E-Bay in and let them take Trade Me to the next level.
Comment by andre, on 17-Nov-2009 13:04
Well, if Trademe do or not decided to sell to E-bay. Lets check out this wonderful opportunity ( www.prestigetrader.co.nz )that can be another profitable business to own in NZ. Absolutely an impressive website. My understanding that the owner continuing to develop more features to be the best. I think this website is a next big business potential. So, let see.
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Comment by PDAMan, on 29-Jan-2009 16:41
I couldn't imagine that eBay would pay them enough to make it worthwhile even if what you say is true about the value. I thought they paid way too much in the first place.
We also know that in many countries print media is bleeding badly and the web would be considered the 'future' of news media. Classified Advertising i daily newspapers used to be a goldmine, now you could hardly wrap your fish and chips in it.