Fairfax to dominate NZ online with $620m deal

Classified advertising is traditionally known as the 'rivers of gold' for newspaper publishers, but recent years have seen Fairfax and similar newspapers around the world, losing ground to their online competitors. The company's $620 million bid for Trade Me, responsible for over 60 per cent of web traffic in New Zealand, shows Fairfax is prepared to pay big dollars to secure a foothold in a changing media market.

The acquisition represents the first major move by David Kirk, Fairfax CEO and former head of PMP, since he took the reins at the company last October. The deal is also the most expensive undertaken by the company since its $1.1 billion purchase of New Zealand's Independent Newspapers in 2003.

“The acquisition of Trade Me reshapes Fairfax's earnings and business mix as part of our more aggressive push into the internet in all the markets in which we operate,” says Kirk. “As a result of our successful online investments, we are now a significantly more diversified media company.”

“The strong revenue and earnings performance of Fairfax Digital in Australia, together with today's acquisition of Trade Me in New Zealand, and other online opportunities that we are pursuing, are coming together to give Fairfax a higher growth profile,” says Kirk.

As well as accounting for over 60 per cent of the internet traffic in New Zealand, Trade Me boasts over 1.2 million subscribers in a market of four million people, a number that is growing by 50,000 a year. Trade Me expects to host 35 million auctions and 15 million item sales during 2006.

While Trade Me dominates the internet landscape in New Zealand, industry analysts claim the deal was well out of proportion with the true value of the business. Several high profile media businesses had looked at purchasing Trade Me in the last 12 months, including Google, eBay and APN, but none took up the high price point demanded by the private operation.

Sam Morgan, (30) founder of Trade Me, will stay on with the company during the ownership changeover, and is set take home $195 million from the deal.

“Thousands of Kiwis make their primary or secondary income on Trade Me. That's a responsibility we take very seriously and so keeping the marketplace running smoothly and sticking to our existing plans remains our focus,” says Morgan.

“I've been very impressed with David and the other Fairfax executives I have met and look forward very much to working with them more in future.”

Fairfax will take on $375 million in debt to finance the deal, and is putting out a call to “institutional and sophisticated investors” to obtain the remaining $250 million for the acquisition.