By Lars Herlin; reposted with permission from AIM Group‘s Classified Intelligence Report.
Schibsted has withdrawn its offer to buy 80 percent of Swedish real estate site Hemnet, and has stopped trying to acquire the site.
After a year of debate and regulatory pressure, Sweden’s Competition Authority made the decision to contest the proposed deal in court (read here), effectively ending Schibsted’s interest in the deal.
The whole affair is certainly a sour end to a relatively strong second quarter for the company (as reported by us here). However, it didn’t stop the markets from appreciating the growth of the Schibsted empire, with the company’s B share ending July 19 early intra-day trading 13 percent higher than at the start of the month.
Dan Sjöblom, director-general of the institution, said in one interview this was “a good day for real estate sellers in Sweden. If the transaction had taken place there would have been a monopoly on digital real estate ads in Sweden and higher prices.”
”The owners have to sit down and talk this through. This is such a new situation and it is a matter for the owners to discuss,” Ingrid Eiken, chairperson of Hem-
net and the CEO of real estate organization Mäklarsamfundet that controls 25 percent of Hemnet, told the AIM Group.
“The Competition Authority is wrong. Schibsted would have been the best handler of Hemnet, for buyers, for sellers and for the brokerage. I do not want to close any doors, but I feel that an industrial owner of Hemnet would be the best,” he said.
He is not keen on selling to a venture capitalist.
“Why should we sell to sell to someone that only dresses the bride to make another deal or take it to the stock exchange. If we wanted that, we could take Hemnet ourselves to the stock exchange. I would prefer an industrial owner with a long-term ambition, and it does not necessary need to be a Swedish player,” he told the AIM Group.
The Swedish media has reported that investment holding company Merro and venture capitalist firm General Atlantic already made a joint bid for Hemnet last month. It is allegedly higher than the Schibsted offer, but there remains doubt whether Hemnet is ready to enter negotiations so quickly after the collapse of the Schibsted deal.
Where did it all go wrong?
In May last year, Schibsted announced two big deals in Sweden. Now, a year later, both deals have failed.
Schibsted and its CEO in Sweden, Raoul Grünthal, seem to be out of luck for the moment, but the failures also reflect badly on Schibsted boss Rolv Erik Ryssdal, who knows the Swedish market well after making his name as CEO of local newspaper Aftonbladet.
“For us it was very simple. It is not so difficult to understand. When the no. 2 on the market buys the no. 1, the competition in the market is negatively affected,” Per Karlsson, Head of Legal Affairs at the Swedish Competition Authority, explained.
Sweden’s regulatory arm has previous experience in blocking real estate deals.
“One reason for the failure might be that Schibsted had not done its homework very well. If anything, the Competition Authority knows the market for real estate advertising in Sweden after bringing Swedbank to court when its realtor chain Fastighetsbyrån tried to buy Hemnet,” said Erik Wikander, CEO of Mäklarhuset, the biggest privately owned brokerage chain in Sweden.
Wikander used to have a great relationship with Schibsted. His company and four other realtor chains published their ads on Schibsted-owned property platform Blocket Bostad in order to compete against Hemnet, which Wikander believes to be the strongest classifieds monopoly in the world.
“Now, we are extremely disappointed with Schibsted and Blocket Bostad. We helped them try to challenge Hemnet with Blocket Bostad, but after a while we got a feeling that they slowed down the tempo and then afterwards we realized that they started their discussions to buy Hemnet. They stopped the development of Blocket Bostad but also stopped having a reasonable dialogue with us,” Wikander said.
This meant that the companies using Blocket Bostad were against the Hemnet acquisition and were very negative to the deal when the Competition Authority made a market test interviewing some of the companies last month.
Another potential stumbling block was that one of the Hemnet owners was not in need of the profits from Schibsted’s impressive valuation of the company.
Mäklarsamfundet is a non-profit organization, and if its Hemnet shares are sold, the money has to stay in the organization, and could be only be used inside the organization.
If Hemnet was sold, some realtors would have benefited fiscally personally, and this money could have been used to reshape the balance of the realtor market — something that was not to the benefit of Mäklarsamfundet.
How will the Hemnet story end?
A qualified guess is that there will be another round of finding a new owner for Hemnet. Despite the Schibsted-fatigue, everything is ready for the company to exchange hands.
Merro and General Atlantic have underlined their interest in a purchase even after the collapse of the Schibsted deal.
And why wouldn’t they? Hemnet has had a very good year.
Turnover increased from SEK162 million ($18.9 million U.S.) to SEK178 million ($20.8 million U.S.) in 2015, while profits doubled to SEK52 million ($6 million U.S.).
© 2016 Advanced Interactive Media Group LLC / Classified Intelligence, reprinted with permission