Hi Geffa,Despite claiming that the Trading Post acquisition will...

Hi Geffa,

Despite claiming that the Trading Post acquisition will be cashflow positive in Year 1, earnings accretive in Year 2, and should generate $63M in EBITDA ($53M in current TTP EBITDA and $11M in planned EBITDA savings). It remains, however, that Telstra paid a very full valuation for The Trading Post.

In terms of valuation, Telstra paid >12x FY04 forward EBITDA (vs a media average of <8x, and a telecoms 6.5x average).

It paid ~4.3x revenue. Again, a very high multiple which should have been ~2 (to 2.5x for the highest quality asset).

The acquisition was in cash which means that it was negative to FCF and ongoing interest and debt coverage ratios.

The aim for $11M in synergistic EBITDA savings appears somewhat optimistic unless Telstra plans on reducing the number of titles, and /or the various State-based points of presence (ie: WA, SA and TAS, for instance).

IT appears to be where the main savings are anticipated, as will procurement services (ie: paper - strange, unless a reduction in titles is being planned).

$19M in total assets is being acquired, or $8M in net assets. That is a 33x total asset valuation, and a near 80x net asset valuation.

Hence a huge intangible cost which may need to be written off in FY05 given adoption of the new goodwill valuation accounting standards.

Net Profit after tax appears to be about $25M, implying a near 26x NPAT valuation multiple.

Given that in making the TTP acquisition, Telstra outbid Fairfax, Packer's PBL and Murdoch's NCP, it appears that Telstra knee-jerked given the Board's recent rebuff on the FXJ acqusition.

It also looks like very little due diligence was actually done ahead of the purchase being announced.

This suggests some form of panic has started to settle in at Telstra.

Whilst Bruce Akhurst and his team can claim that The Trading Post represents a good buy, it remains that not many Telstra press releases come with separate quotes attributed to each of Ziggy, Akhurst, CFO Stanhope, Sensis CEO Andrew Day, and Trading Post CEO Roderick McAllery.

The $636M acquisition price was upwards of $170M more than what Fairfax was considering for the acquisition and between $100-200M more than what each of NCP and PBL was considering.

A potentially bad deal that returns TLS to the heady days of the dotcom era (ie: paying inflated multiples for IP-based assets which genuinely generate limited profit returns, and then using EBITDA - a dot com favourite - to justify the expensive price tag.