Trade Me in trading halt as Fairfax sale confirmed

Fairfax bought Trade Me for $700 million in 2006 and floated 34 per cent of the company in December 2011. Photo / File

Trade Me shares are this morning in a trading halt, as majority owner Fairfax this morning confirmed it is placing its 51 per cent stake in the online trading company on the block.

An announcement to the stock exchange from Trade Me has just confirmed that Fairfax is seeking to sell out completely from the company, and is running a bookbuild process to find buyers for its shares.

It is understood the shares were being offered at A$3.05 ($3.80) apiece - a 5 per cent discount to the stock's close on Friday. That would yield A$616 million ($769 million) for the troubled Australian media company with had debt of A$914m at June 30.

The Sydney Morning Herald, which is owned by Fairfax, reports today that details of the sale will be announced today.

Fairfax has seen its share price fall 88 per cent in the past five years and the company's shares slumped 29 per cent this year after it posted a record annual A$2.73 billion loss and said in June it would cut 1900 workers, close printing sites and introduce internet subscriptions as it seeks to halt sliding revenue.

Business consultant Lance Wiggs, who was an adviser to Trade Me founder Sam Morgan during the company's sale to Fairfax Media in 2006, said it was sad news.

"It's sad that they've found themselves in a place where they have to sell their best asset," Wiggs said. 'They're also opening themselves up for a competitor, a media competitor who is a bit more hungry to come in and take Trade Me."

Although Wiggs believed Trade Me would be held by institutional players such as pension funds in the short term, he believed rival media companies could look to snap up a controlling stake in the company.

Australian rich-lister James Packer could look to up his stake in the company, Wiggs said.

Packer is the son of media tycoon Kerry Packer and his companies have a stake in Australian television company Foxtel. Forbes magazine this year valued Packer's wealth at US$4.5 billion ($5.3 billion).

Ellerston Capital, a fund manager controlled by Packer's family interests, emerged in August as a substantial holder of shares in Trade Me, owning about 5.18 per cent.

Wiggs also suggested the digital arm of Rupert Murdoch's News Ltd could be interested in Trade Me.

With Fairfax losing control of Trade Me, he said, its New Zealand branch would need to make a renewed push into e-commerce to rival APN's efforts with daily-deal site GrabOne.

Former Trade Me director Gareth Morgan said the sale said more about Fairfax than Trade Me.

"If you look at the Fairfax share price, the Fairfax balance sheet, those guys are in reasonable trouble. If you look at their revenues, they've got a lot of debt, they've got to be under pressure. When you're put under that sort of pressure what you tend to have to do is sell the jewels in the crown. They've probably in the awful position of having to do that."

If the rest of Trade Me was sold on market, Morgan said there should be reasonable appetite for it, depending on the price.

"It has a very secure cashflow, so in that sense it's a good income stock. It's also got growth potential."

Morgan believed the company would be bought by institutional investors, rather than an entity coming in and being a controlling shareholder.

Transaction list
Founded 1999 by Sam Morgan.
Sold to Fairfax in 2006 for $700m.
December 2011, Fairfax floats 34 per cent on NZX, raising A$364m.
June 2012, floats a further 15 per cent, raising A$160m.
The final sell-down could yield A$616m