Second offer on Trade Me lifts stakes

A second multibillion-dollar takeover offer has been made for internet auction site Trade Me, upping the stakes for shareholders.

Late last month, global private equity firm Apax Partners of London made a $6.40 per share offer, worth $2.54billion, while yesterday US private equity firm Hellman & Friedman countered with a $6.45 bid, valuing dual-listed Trade Me at $2.56billion.

Both offers are subject to due diligence and are non-binding.

Apax has exclusive due diligence access until December 12, but that was subject to Trade Me retaining the ability to engage with any third party which may come forward with an unsolicited proposal.

Trade Me shares were buoyed almost 2.5% following the announcement, trading at $6.22, more than 26% up on a year ago.

Analysts have said Trade Me’s dominance and scale in New Zealand, strong cash flows and low debt were attractive to overseas suitors.

Craigs Investment Partners broker Chris Timms emphasised both offers were still indicative only and non-binding, but should a formal offer materialise, shareholders would be hoping for a ‘‘bidding war’’.

‘‘Shareholders could then sit back and wait for the best offer,’’ he said.

He was not surprised Trade Me’s share price had not risen closer to Apax’ $6.40 offer, given a formal offer was yet to be made, making investors cautious about buying in now.

He cautioned both suitors could complete due diligence and ‘‘decide to walk’’, without making an offer.

Mr Timms said the potential for Trade Me to be sold, and delisted, was ‘‘incredibly disappointing’’ for the NZX, which would be losing a major company.

Trade Me was founded by Sam Morgan in 1999, who sold it to Australian publisher Fairfax in 2006 for $700million, which in turn listed Trade Me on the stock exchange in late 2011, with a valuation of $1.07billion.

For its year to June, Trade Me revenue hit $250million and it booked a 3.9% increase in after-tax profit, of $96.6million.

Devon Funds Management chief investment officer Mark Brown also saw room for some ‘‘sweetening’’ to the offer price, given Trade Me’s market power as an incumbent and because it was attractive as ‘‘enormously cash generative and has very little debt’’, BusinessDesk reported.

He said that beyond the potential bidding war between rival private equity players Apax and Hellman, it was possible a trade buyer like Alibaba could also place a bid.

The Chinese giant ‘‘has bought players in other parts of the world rather than start from scratch. You could see someone in the industry making that play,’’ Mr Brown said. — Additional reporting BusinessDesk

simon.hartley@odt.co.nz

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