CVC’S decision to sell down its stake in the carsales.com website comes as its wholly owned Nine Entertainment Co eyes softening conditions for the remainder of 2010-11 financial year.
In December, Nine told fund managers it was on track to strike operating earnings of about $550 million for the current financial year, but now, stripped of carsales.com’s operating profit of about $40m, it is believed forecasts are in a range of $480m-$500m.
The weaker number, even accounting for carsales.com’s profit being pulled out of the business, reflects the fact that media companies have hit something of an airpocket in the past few months after a roaring run last year.
That means a lower than expected valuation on any sharemarket listing of Nine Entertainment, which until yesterday housed the carsales.com unit.
As foreshadowed yesterday, CVC sold its 49 per cent stake in carsales.com, raising more than $565m in an institutional placement underwritten by UBS.
The placement at $4.92 appears to have represented perfect market timing, in view of yesterday’s 1.4 per cent plunge in the S&P/ASX 200 index.
Weak consumer spending and soaring oil prices are not helping market sentiment and CVC’s decision to lock in returns now to reduce a $4 billion debt pile looks prudent.
Based on multiples of nine times earnings, CVC could strike a valuation of $4.5bn for Nine Entertainment, still well below the total $5.6bn CVC spent on acquiring the company from James Packer during 2006-08, but still with $500m equity in the business at that valuation.
CVC executives are watching nervously the fall in media valuations lately — particularly West Australian Newspapers, currently subject to a merger proposal with Seven Media.
WAN’s shares have been hammered since the merger announcement late last month and are trading at about seven times operating earnings.
At that value, Nine would be worth just $3.5bn on forecast 2010-11 operating earnings.
Sources close to CVC said the private equity group was yet to decide on the timing of its $5bn float.
Many investors expect a float in the second half of this year, but CVC and its advisers at Credit Suisse, Goldman Sachs and UBS do not need to rush to market with the initial public offering because its debt is not due to be refinanced until early 2013.
CVC had previously maintained it was willing to retain carsales.com going into the float, but it’s believed the car advertising website’s stellar first-half results, combined with strong share price performance, prompted a reconsideration over the weekend.
However, the carsales.com sale is unlikely to open the door to further asset sales.
It’s believed CVC’s intention is to retain its troubled magazines division.
Geoff Elliott
Nabila Ahmed
[theaustralian.com.au]
