John Fairfax has been widely pilloried for missing its opportunity to invest in Seek.com and it seems the newspaper company is still deluding itself that the booming Packer-backed online jobs business is not all it’s cracked up to be.

An internal Fairfax assessment of the Seek prospectus – headlined “The Seek prospectus: blue sky for who?” – has been leaked to Crikey and it’s damning, attacking Seek for making false claims, misrepresenting the US jobs market, underplaying the cyclical nature of classifieds, using cynically timed graphs and generally over-selling the business case.

You can read the full document here. Some of the attacks in the document are as follows:

  • The prospectus notes developments in the US employment classified market, but misses the biggest story: the success of hybrid print-online employment sites over pure plays. There are other significant omissions in the prospectus. And should the Ecorp experience be recalled?
  • The employment classifieds market has been, and will continue to be, cyclical. But one could be forgiven for not appreciating this risk if relying solely on the charts in the Seek prospectus.
  • There is indeed a message out of the US experience, which is three or more years ahead of developments in the Australian market, and that is: the pure plays have peaked, and newspaper online hybrids are winning in the marketplace.

While some of these attacks may be well founded and Seek is certainly floating at the peak of the cycle, Fairfax’s embarrassment remains acute because PBL paid just $33 million for a 25% stake in August 2003 and now the company is raising $170 million in a float that values the business at more than $500 million. When asked if he was disappointed at missing out, Fairfax CEO Fred Hilmer said “absolutely not disappointed at that price”.

PBL is in an interesting situation because as part of the float it wants to retain its 25% and confirm itself as the largest and most committed shareholder. Therefore, it has agreed to spend several million dollars buying more shares at the float price, which lead underwriter Macquarie Bank has estimated will be between $1.80 and $2.20 a share.

When you’re buying shares you want to pay as little as possible so the Packers wouldn’t be too disappointed if Fairfax’s gloomy prognosis sent the float price tumbling and PBL was able to top up at a lower price.

That said, any serious slump in the float price would probably see the founders who are selling down, Andrew and Paul Bassat and Irvin and Matt Rockman, reduce the size of their sales, not unlike what the Google founders did when the price was cut in last year’s float.

The Fairfax document concludes with the following sledge:

Ecorp Redux?

In June 1999, Ecorp floated at $1.20. The Ecorp shares peaked at $8 at the height of the internet boom and the cycle. Well after the internet bubble burst, PBL bought back its former subsidiary at 55 cents per share in April 2003. Caveat emptor.

The Fin Review’s Street Talk column produced a Seek float item today which was obviously based on this document but it failed to reveal the source or go into any detail. It will be very interesting to see whether the Fairfax papers cover this leak properly tomorrow and whether Seek attempts to rebut some of the claims as this is a very unusual situation for a competitor to lash out at a new float like this. Anyone for a supplementary prospectus?

Peter Fray

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