Carsales buys in South Korea

Carsales.com has underlined its international aspirations this week with a couple of deals.

The first was to subscribe for an additional 3% of iCar Asia, at $1 per share, for a total consideration of $7.2m. That takes Carsales' stake to 22.9% and is the most it can buy without launching a full takeover offer for the company (which it is in any case prevented from doing, without iCar Asia's agreement, by the terms of a lock-up agreement).

The money will be handy for iCar Asia, which recently reported a $6.9m loss for the year to December and had only about $12m cash at 31 December. Despite those numbers, the business is progressing well at entrenching its positions in Thailand, Indonesia and Malaysia, and recently began its 'monetisation program' in the latter, signing up 30% of the country's dealers to a 'paid feature subscription plan' in under a month.

Carsales is evidently pleased with progress given that it's paying $1 for the new shares having bought its initial 19.9% stake at 37.5 cents almost a year ago (see 17 April 13 (Buy – $9.11)). iCar Asia shares have since risen to around $1.40, valuing Carsales' stake at $62m.

The second deal is for the purchase of 49.9% of the online assets of SK Encar, South Korea's 'leading automotive trading business'. SK Encar is part of SK Group, one of South Korea's largest conglomerates and listed 57th in the Fortune Global 500.

The deal is structured so that the assets of SK Encar will be split between online and offline, with the former going into a new vehicle called SK ENCARSALES.COM (in capital letters apparently), in which Carsales.com will take a 49.9% stake, with SK C&C (a member of the SK Group) taking the other 50.1%. Carsales will pay 121 Korean won for the stake, equivalent to about $126m, implying a total value for SK ENCARSALES.COM of about $252m. The deal is subject to SK C&C shareholder and South Korean regulatory approvals and is expected to complete before 30 June.

The assets to be included in SK ENCARSALES.COM will include www.encar.com, which is 'the clear number one automotive classifieds website in South Korea'. They're also already profitable (on an earnings before interest, tax, depreciation and amortisation basis) and are expected to add to Carsales' earnings per share from the start. By combining Carsales' technology with SK Group's local knowledge and clout makes the deal look very attractive.

With the Brazilian Webmotors business (in which Carsales owns 30%) coming into profit (see Carsales: Interim result 2014 on 14 Feb 14 (Hold – $10.48)), Carsales' overseas portfolio is starting to take shape – although it's still small relative to its market capitalisation of $2.7bn.

Carsales' share price is up almost 8% today, following the announcement of the Encar deal, which puts it up 7% since 14 Feb. HOLD.

Note: Our model Growth and Income portfolios own shares in Carsales.com.