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Naspers of South Africa moves into East Europe with acquisition of Tradus

2007.12.20
Naspers of South Africa moves into East Europe with acquisition of Tradus

 

BERLIN: The South African media group Naspers agreed Tuesday to acquire Tradus, which operates the largest online auction trader in Poland, for £946 million, adding to its stable of Internet businesses in emerging markets like Eastern Europe.

Naspers sees the deal, valued at $1.9 billion, as extending its reach as it seeks to diversify its revenue, now largely dependant on newspapers and magazines. Tradus, which is based in London, has online auction businesses in Eastern Europe, specifically in the Czech Republic, Bulgaria, Hungary, Romania and Slovakia - and beyond, to Ukraine and Russia.

Naspers owns the largest South African satellite pay-television broadcaster, MultiChoice, 74 magazines and 58 newspapers. But the company has expanded aggressively during the past five years, adding stakes in Sanook, a Thai Internet portal; Tencent, the leading Chinese Internet portal; Mail.ru, a Russian Internet portal; and iBiBo, an Indian Web portal.

"The operations of the Naspers group and Tradus complement each other perfectly and significant advantages can be obtained by aligning Tradus's businesses with Naspers's other Internet investments in Central and Eastern Europe," said Cobus Stofberg, the chief executive of Naspers.

Tradus, founded in 1997 as QXL Ricardo by Tim Jackson, a former journalist for The Financial Times, is a survivor of the collapse of the technology industry in the United States and Europe at the turn of the century.

Robert Dighero, chief financial officer for Tradus, said during an interview that the company's East European operations generated about 71 percent of its sales, with the majority coming from Allegro, its Polish auction business.

Tradus focused on building its business in Eastern Europe, Dighero said, to avoid competing directly with larger competitors like eBay and Amazon.

"We don't really compete against eBay in most of our markets," he said. "We established a strong position in the Eastern European markets before eBay was able to enter the market. This is the kind of business where there are very strong first-mover advantages."

Dighero said online auctions were growing rapidly in Eastern Europe, where retail store chains were not as established and developed as in the West.

Tradus's sales in Poland rose 80 percent last year, Dighero said, compared with about 25 percent annual growth in its West European markets like Denmark, Norway and Switzerland.

Charles Abrams, a research director at Gartner in charge of Web-based e-commerce strategies, said the growth in online commerce was increasing in Europe as more shopping was done by the Internet, and businesses, in particular, took advantage of e-commerce marketplaces.

"Internationally, are we going to see growth in this space? Definitely," Abrams said.

Naspers made about 73 percent of its 7.3 billion rand, or $1.1 billion, in sales in 2006 in South Africa. Tradus said it expected to generate £70 million in sales for the financial year ending March 31.

Naspers said it would pay a premium of 37 percent above the average of the Tradus share price in London in the three weeks before Nov. 7, when Tradus announced it was in talks with a prospective buyer.

Tradus said it would recommend that its shareholders accept the offer from Naspers. Completion of the sale, which will require approval of Polish competition officials, is expected in March.

News of the deal sent shares of Naspers tumbling in Johannesburg. They closed down 1,850 rand, or 10.22 percent, to 16,250 rand.

Acquisitions by eBay and Amazon.com of other e-commerce concerns have recently valued those businesses at 22 times earnings before interest, taxes, depreciation and amortization.

Naspers agreed to pay about 30 times earnings.

"There is concern about the price that Naspers is paying," said Chris Hart, the chief economist at Investment Solutions, an asset management company based in Johannesburg.

"Based on this purchase price, it will take quite a long time before Tradus starts to make a positive contribution to Naspers."

But the purchase of Tradus, Hart said, has revived concern in South Africa that Naspers might be too aggressive in its expansion, buying into businesses beyond its traditional strengths in publishing and television.

"Naspers is one of those typical South African companies which has basically outgrown South Africa and needs to make acquisitions to maintain a reasonable rate of growth," Hart said. "The only question is as they do that, whether they will grow beyond their traditional strength and muscle."

Tradus was also the subject of a 2005 takeover battle between two groups of investors, one of which included managers.

Neither bid won enough shareholder support, according to Bloomberg News.

Tradus is similar to eBay, "which has been one of the more successful" Internet companies, said Kevin Mattison, an analyst at Avior Research in Cape Town, according to Bloomberg.

Tradus shares have surged this year, more than doubling in London Stock Exchange trading before the bid, on speculation that the company would be acquired.

The stock rose the most in almost 10 months after it had been approached about a takeover.

On Tuesday, Tradus rose 12 percent to £18.15 in London.

 

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