Morgan's big trade nets him $227m

"Smart," is how people describe Sam Morgan, the founder and chief executive of Trade Me.

Yesterday Mr Morgan proved he had $700 million worth of smarts, selling his online trading business to Australian media company Fairfax.

Mr Morgan, 30, flew to Australia to speak at Fairfax's half-year results briefing and explain the online company he started in 1999 as a "garage sale" of second hand goods.

The sale, subject to Overseas Investment Commission approval, eclipses an earlier dotcom deal, Steve Outtrim's sale of his shares in Sausage Software in 2000 for more than $163 million.

Though Mr Morgan's $227 million share of the deal wouldn't quite boost him into the top 20 in the NBR's Rich List for 2005, it will see him replace Mr Outtrim as richest person in the technology sector.

Analysts yesterday celebrated the success of Mr Morgan, who holds just over 63,000 of Trade Me's 194,730 shares, while questioning whether Fairfax paid too much.

His parents, economist Gareth Morgan and mother Joanne Morgan, will get $47 million.

Sam Morgan's colleagues from his Deloitte days, who invested to get the business up and running, will end up with about $70 million each.

Phil McCaw was Mr Morgan's boss at the accounting firm in the mid-1990s and later headhunted him for a new company he and colleagues were setting up.

Six months later, Mr Morgan asked them to invest $75,000 in his new idea.

"We said yes partly because it was Sam. He's just smart. He was such an extraordinarily talented young man.

"He had a lot of belief in what he was doing and I guess he convinced us of that. It was a case of putting our money where our mouth was."

Asked if he is surprised at its success, Mr McCaw says "yes and no".

"We always knew it had a huge amount of potential. But not quite this amount of potential."

In the seven years it has been running Trade Me has developed into the country's most visited website. It has 1.2 million members who sell anything from secondhand furniture and clothes through to antiques and cars.

Trade Me receives 60 per cent of all local internet traffic and it is expected to host about 35 million auctions this year. In 2005 it generated sales worth about $300 million.

Trade Me's growing slice of the classified advertising market was one of the reasons it was so attractive to Fairfax, publisher of the Dominion-Post and Sunday Star-Times in New Zealand and the Sydney Morning Herald and Australian Financial Review across the Tasman.

Following the announcement, ratings agency Standard & Poor's downgraded its long-term outlook on Fairfax from stable to negative. Fairfax shares slid 4Ac to A$3.90 in Australia amid concerns about the price.

"It has a sniff of a panic buy," said Greg Fraser, a media analyst at Shaw Stockbroking in Sydney. "New Zealand is a small market and I can't see what they can do to grow the business."

In December last year reports said Trade Me had an asking price of $100 million, with just a couple of sources picking it could go for up to $500 million.

Mr Morgan confirmed yesterday the widely aired rumours that he had had talks with various parties over the past few years, but said Fairfax was the first company with which he had had a "meeting of the minds" on the value of Trade Me.

Fairfax chief executive David Kirk said the deal took "an extraordinarily short period of time".

Mr Kirk first met Mr Morgan last November, on a visit to New Zealand.

In January, discussions got serious and in just over a fortnight the deal was clinched.

It's unlikely Morgan pulled out a quote he gave to the NBR last year, in which he said "it would be fundamentally wrong to think a newspaper could buy a company like Trade Me and achieve any kind of synergy".

When the offer is $700 million, synergies seemed a little less important.

"We've spent seven years building it up, there's been a lot of blood and sweat at times, so it's great to have finally got to here."

Mr Morgan is contracted to Trade Me for a year.

"I'm 30 so I'm still wanting to work quite a bit. I really enjoy what I do."

As for what he'll do with the cash? He hasn't got that far yet. "I've spent the last weeks just talking to lawyers. I'll have to sit down with my family and talk about that."

- Additional reporting BLOOMBERG