According to CSFB:1)The Trading Post acquisition is being done...

According to CSFB:
1)
The Trading Post acquisition is being done at "12x calendar 2004F EBITDA or 9.9x June 2005F EBITDA including expected synergies". This equates to a full price "and probably gives away most of the synergy value to the seller".
2)
EPS+ within 2 years, and earning cost of capital within 5 years.
3)
"(A)cquisition looks reasonably sensible to (CSFB) strategically".
4)
Concerns equate to:
4.1
price paid; and
4.2
"the fact that revenue growth in the business appears to have slowed in the December 2003 half".

Grant62 view:
The impact on TLS as a whole is minimal. However, the full valuation paid, the overuse of executives to enthuse about the acquisition, and TPP not expecting to earn TLS's Cost of Capital until Y5, all lend themselves to the view that Telstra has panicked, and bought into an asset with little forward due diligence, an over-reliance on the EBITDA numbers, and a mistaken view as to the nature, direction and remaining growth in the overall classified ad market.

With NPAT closer to $25M and a cash acquisition cost of $636M, Telstra's effective funding cost of the acquisition is >$40M (assuming 6% interest, pre-deduction), or ~$51M (assuming 8% cost of capital).

To cover Telstra's cost of capital, TTP has to double its current profit position within 5 years, and increase EBITDA to >$100M. That's a tall ask in a business which is generating <$150M in revenue and is posting a current EBITDA of ~$53M (pre-synergistic benefits).

That's why the share price fell today. For all its talent, skills, past experience, and ability to led the market, Telstra was gazumped today by being forced to pay top dollar for a relatively mature asset, in order to either find a new business driver, or to shore up its market share within SENSIS.

Either way, Telstra management do not appear to be in total controlof their business at the moment. Optus must be hurting them more than what anyone is currently realising.