More Trade Me shares could be floated

Fairfax 5-year ASX performance (S&P Capital IQ; click to enlarge)
Trade Me NZX performance since its Dec IPO (S&P Capital IQ; click to enlarge)

As Fairfax shares hit an all-time low, some shareholders are pushing for the Australian media company to sell down its majority stake in Trade Me, according to a story in the Fairfax-owned Australian Financial Review.

Others activist shareholders are pushing for a company break-up, the AFR says.

Meanwhile, Bloomberg reports Fairfax has become an attractive target for a leveraged buyout.

Speculation has been fuelled by Fairfax shares [ASX:FXJ] falling to an all-time equal low of 58 cents yesterday (they were flat at that level in late Thursday trading).

The debt-laden Australian company's stock has now lost 87% of its value over the past five years.

According to Royal Bank of Scotland analysis, Fairfax now trades at a 59% discount to the $A3.3 billion of its six business units.

Some shareholders are pushing for a new company to be spun off that would hold Fairfax's large metro newspapers. The group's radio stations could also be sold.

Fairfax bought Trade Me for $720 million to diversify its revenue as classified advertising evaporated from newspapers.

In December last year, it floated 33% of the auction site in a bid to pay down around $A1.5 billion in debt.

Fairfax's remaining stake in Trade Me is valued at around $A790 million.

The potentially diluting effect of more Trade Me shares hitting the market comes on top of analyst fears that Fairfax could mount a fresh raid on Trade Me's balance sheet, loading up the subsidiary with more debt or related party loans.

At the time of its December IPO, Trade Me - which is cashflow positive in its own operation - was saddled with $166 million in debt from the wider Fairfax group.

Trade Me true believes will be looking to its founder, Sam Morgan, who now holds a Fairfax board seat, to fight its corner.

For its half-year to December, Fairfax reported a 44% fall in net profit to $A172.9 million on revenue that fell 7.7% to $A1.2 billion.

Trade Me was a rare bright spot, with a 12.7% increase in revenue to $67.3 million and ebitda up 9% to $52 million.

Fairfax’s New Zealand media division, which includes The DominionPost and Stuff, saw revenue fall 8% to $226.7 million and ebitda slide 21.5% to $40.9 million.

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I wonder how much they will load up Trade Me with their debt. What happens to Trade Me in the future if the their market shifts. As we know things are always changing and more sites and innovation will enter the market both globally and maybe in NZ for example Facebook. Plus keep in mind they already have a bulk of a very small market what room is there for them to increase profit apart from putting up prices and encouraging competition.

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