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Published 20 February 2013 10:02, Updated 22 February 2013 08:13
Seek chief executive Andrew Bassat said Zhaopin would have an initial public offering, but not within the next six months.
Ben Holgate and James Chessell
Online job advertising company Seek is set to become only the second Australian media business after Rupert Murdoch’s News Corp to own a listed company offshore, when it floats its Chinese holding, Zhaopin, for a possible $650 million.
Seek chief executive Andrew Bassat has confirmed that Zhaopin – which counts Crown chairman James Packer as its second-largest shareholder – will launch an initial public offering after August.
“We’re open to Hong Kong and the Nasdaq at the moment,” Mr Bassat said. “We’re not committed to either.”
The confirmation comes as Seek looks to expand its portfolio of international investments, which range across China, Malaysia, Brazil and Mexico, and diversify away from its core business of local online job ads, a market that is maturing.
Seek revealed yesterday that the local division posted its first-ever revenue decline, slipping 2 per cent in the first half of 2012-13.
“Seek and Zhaopin are my second-biggest position after Crown, which gives you a good idea about what I think about the company and its management,” Mr Packer said.
“Seek has done incredibly well in its domestic market, but that is maturing and it makes sense to look offshore, especially China.
“Australian business has not always done well expanding offshore, but there are plenty of success stories,” Mr Packer said, referring to Crown’s one-third stake in Macau gaming company Melco Crown Entertainment.
“Companies that engage and understand the local business culture can do well.
“The rise of China will define business this century and Seek, through Zhaopin, already has a strong business on the ground.”
Investors have been speculating about a Zhaopin float for at least three years.
The question is whether Seek will decide to list China’s No. 2 player in the local job ads market on the Hong Kong Stock Exchange, or on the Nasdaq in the United States, where most of the Chinese-based internet companies are listed.
Mr Bassat said Seek did not plan to exit Zhaopin through an IPO.
Mr Packer, who was a foundation investor in Seek, stands to gain a windfall as a 22 per cent shareholder in Zhaopin.
Its main competitor, 51job, which is listed on the Nasdaq, attracts a price-to-earnings ratio of about 21 to 22 times. Based on a similar multiple, Zhaopin would be valued at about $650 million.
However, Morgan Stanley media analyst Andrew McLeod last year estimated Zhaopin to be worth up to $US900 million.
Macquarie Group analyst Andrew Levy last month calculated Zhaopin’s equity value to be $595 million.
Seek has so far invested about $180 million in the business.
The company yesterday increased its stake in Zhaopin from 56 per cent to 78 per cent on an undiluted basis after Macquarie Group, an original investor with a 20 per cent stake, and other minorities, sold out.
As a result of the transaction, which cost $US133 million, Mr Packer’s stake rose to 22 per cent. Zhaopin management also holds a stake through options.
Seek paid US$64 million ($A62 million) and utilised $US68 million ($A66 milion) of cash from Zhaopin to fund the transaction.
The advantage of listing on the Nasdaq is a greater access to capital. However, the Hong Kong stock exchange has been trying to line up a pipeline of IPOs and a listing there would be closer to Asian investors who know the sector.
Seek chief financial officer John Armstrong said the company would create “a meaningful free float” but “maintain a pretty significant controlling position”.
“We believe in the business in the long term and we believe in the China story,” Mr Armstrong said.
Mr Armstrong said there were three key drivers for the float: unlocking value; lifting the level of governance in Zhaopin; and the fact that public companies were viewed more positively within China.
It is understood Seek plans to run a proper process to choose the IPO lead manager.
Zhaopin’s revenue grew 8 per cent in the first half to 446 million yuan ($69 million), while earnings before interest, tax, depreciation and amortisation (EBITDA) rose 8 per cent to 119 million yuan.
Zhaopin’s profit contribution to Seek in the first half rose $1 million to $8.6 million.
Seek’s total revenue jumped 32 per cent to $275 million, while group EBITDA rose 20 per cent to $108 million, just above Bloomberg consensus.
Net profit after tax was up 11 per cent to $67.5 million.
But Seek’s local job ads business reported a 2 per cent revenue fall against flat EBITDA, reflecting a weakening employment market.
Mark Arnold, chief investment officer of Hyperion, which owns 10 per cent of Seek, said the result was “solid”.
“A flat result in the domestic job ads business was a good outcome,” Mr Arnold said. “The yield increase offset the volume decline.”
Deutsche Bank analyst Vikas Gour said group EBITDA was “marginally ahead of our estimates of $106 million driven by the higher than expected earnings in the education business”.
This story first appeared on The Australian Financial Review.