TECH DEALS: Seeking a Chinese payday

Tech Deals is a weekly column covering the latest deals in one of the busiest sectors for M&A. To read previous articles go to our Tech Deals page.

Seek, Zhaopin

Online jobs website Seek has seen its shares hit their highest note in the last two months, buoyed by the talk of a potential float of its Chinese asset Zhaopin. Seek shares went as high as $5.92 a share last Friday after reports the local online recruitment heavyweight had hired investment bankers – Credit Suisse and Macquarie Group –  to manage a possible IPO.   Seek owns 56.1 per cent of Zhaopin, while Macquarie Capital has a 38 per cent stake and the Australian Financial Review reports a float will see Seek retain its stake, with Macquarie likely to sell most of its share.  As far as Seek shareholders are concerned a potential IPO of Zhaopin would be more than welcome, hence the jump in share price, but a final result will of course come down to timing.

The global markets may not be as stable as one would like but the positive for Seek and Macquarie Capital is that assets like Zhaopin are attractive at the moment. The strength of the Chinese economy has proven to be a healthy catalyst for the recruitment industry as companies seek their help to pinpoint labour. The online recruitment market in China, worth around $300 million, is growing steadily and Zhaopin in one of the three top sites making the most of that growth. The company is also actively extending its presence in the country via branches in a host of second and third-tier Chinese cities after reporting profit of $US8.7 million profit this year. So, there's a lot of positive momentum here and the recent mega IPO of LinkedIn will only add to the appeal.

Citing Citigroup research, the AFR reports that a float of Zhaopin could value the company at over $US1 billion and that's a lot more than the $US100 million it was valued at five years ago when Seek bought its first piece.  Seek made its initial investment in 2006 when it paid $26 million for a 25 per cent stake in Zhaopin, it subsequently paid another $50 million in 2008 to beef up its stake to 43 per cent. Macquarie also joined the party in 2008 with a $60 million investment to take an initial stake of 29.1 per cent.  Both now stand to follow the footsteps of Telstra, which booked a $US190 million profit after selling its 51 per cent stake in Chinese online property ad outfit SouFun, making a good return on a Chinese investment.

Seek has understandably hosed down talk of  an imminent IPO with chief executive Andrew Bassat  telling the AFR things were pretty speculative at the moment, and you really wouldn't expect anything more at this point from them.  However, there is ample evidence out there that suggests the early groundwork for a profitable float potentially in the first half of next year is underway. 

iiNet, TPG

Another company that saw its shares move up last week was the Perth-based internet services provider (ISP) iiNet as investors welcomed the move by TPG Telecom to creep up the ISP's register. TPG recently picked up 1.35 million iiNet shares from former major shareholder, Amcom Telecommunications and iiNet told the market last week the telco now has a 4.4 per cent stake in the company.

That puts TPG within touching distance of the five per cent substantial shareholder threshold but the company maintains it has no intention of taking things any further at the moment. According to Fairfax papers, the iiNet stock has been hoovered up by TPG vehicles Value-Added Network and Blue Call and TPG's executive director Alan Latimer has told the papers that the shares had been bought in the past couple of months in the $2.15 to $2.30 range.

So, it looks like TPG is picking up undervalued iiNet stock for the time being but it will reignite takeover talks. The move has evidently been sufficiently alarming for iiNet to make the matter public and there will many out there who reckon the ISP is going to come under assault from TPG sometime soon and the latest moves are just a precursor to what will be a keenly contested stoush.

Trade Me, Fairfax Media

Moving across the Tasman, there is plenty of talk that Fairfax Media may push to partially float its auction site Trade Me before Christmas. Fairfax management finally green lighted the option to float 30-35 per cent of the successful business in August although it had not specified the timing. According to the National Business Review, the float could take place before the end of the year as Fairfax's sole lead manager for the float, UBS, is circulating a research report on Trade Me to prospective investors. According to the AFR, the report assigns a value of up to $NZ1.1 billion excluding net debt of $166 million. The report also forecasts a profit of $NZ68.6 million for 2012 and with Trade Me's board apparently committed to paying 80 per cent of net profits in dividends, shareholders could get back as much as $NZ27 million in the first half of next year. 

Telstra, Fujitsu, Vocus Communications

Clinching the NBN deal might have been the big highlight for Telstra last week but the telco also managed to forge a handy alliance with GPS services provider Navman Wireless. The companies have been friendly for quite some time now and the latest strategic partnership will see Navman's GPS fleet management solutions made available to Telstra customers under a monthly repayment option. This is the first time Telstra has offered fleet management technology to customers in this way and with local demand for the services growing quickly Navman's Asia Pacific vice president Ian Daniel told Technology Spectator that the telco has been quick to seize the inititative in this sector. Under the terms of the partnership, Telstra's business customers will be offered the service on 36 month contracts, with an option to pay for the product on a monthly repayment basis. Meanwhile, Fujitsu is trying to drum up some support for its cloud computing wares outside of the standard enterprise and government circles, with the company offering independent software vendors and small and medium enterprises (SMEs) a two month free trial of its local cloud computing platforms.

Finally, ASX-listed Vocus Communications has sealed a multi-year international Internet access (IP Transit) deal with Seven Group Holdings' subsidiary vividwireless. Under the terms of the deal, Vocus will provide the high speed internet access via its fully redundant 10GB interfaces at its Perth IX data centre. The value of the deal was not disclosed.

Microsoft, Yahoo, Alcatel Lucent

In overseas news, the Wall Street Journal reports that Microsoft is in the race for Yahoo with the company part of a consortium planning a bid for the ailing internet company. The report suggests Microsoft has joined forces with private equity operator Silver Lake Partners and the Canada Pension Plan Investment Board. However, we will have to wait and see whether there is any fire behind the smoke. It wasn't that long ago that Microsoft boss Steve Ballmer was thanking his lucky stars for dodging the Yahoo bullet so we are not sure how much he will be willing to tip into any joint bid. Then again Yahoo co-founder Jerry Yang, who is apparently re-asserting his authority at the company, may still not be interested in selling to Microsoft at all. And just in case there wasn't enough speculation already on the fate of Yahoo, the latest  Wall Street Journal  report suggests that Google may be in talks with at least two private equity firms about potentially assisting them to finance a deal to buy Yahoo's core businesElsewhere, Alcatel-Lucent has agreed to sell call centre software subsidiary Genesys to venture capital fund Permira for $US1.5 billion. The deal is expected to be finalised by the end of 2011 or in early 2012 and is subject to regulatory approvals in Europe and the US.