German classifieds group Scout24 (G24n.DE) said on Tuesday it would explore a sale or spin-off of its autos platform and borrow more to buy back shares, after facing calls from activist investor Elliott to boost shareholder returns.
The strategic review marks a concession to Elliott’s demand to carve out and sell AutoScout24, which sources close to the U.S. fund say could fetch up to 2.5 billion euros ($2.8 billion).
“We can consider a range of options for AutoScout24 and will examine these with an open mind. These could include a sale or spin-off,” CEO Tobias Hartmann told Reuters at Scout24’s headquarters in suburban Munich.
Elliott, in a letter published last week, also urged Scout24 to expand a proposed 300 million euro buyback of stock, saying its share price could top 65 euros if management acts decisively to boost returns to shareholders.
In response, Hartmann told analysts on an earnings call that Scout24 could afford higher long-term leverage – of up to 3.5 times core earnings – to support greater capital return to shareholders.
Shares traded steady at 52.45 euros on Tuesday, up 14% over the past year and valuing the business at 5.6 billion euros.
Hartmann played down talk of tensions with investors calling for faster change at Scout24, which runs Germany’s leading property portal and whose autos operation is present in Germany, Italy, the Netherlands, Belgium and Austria.
“Our ideas and those of our investors are not that far apart,” said Hartmann, who joined Scout24 last year from meal-delivery group HelloFresh (HFGG.DE).
He pointed to a strong operational performance, with group revenue gaining by 20% in the first half, as Scout24 confirmed guidance for revenue to expand by 15%-17% this year, with core profit margins at 52%-54%.
Hartmann said an overhaul announced on July 19, to structure Scout24’s property and autos operations as two separate verticals, could expand group operating margins by 200 to 300 basis points by 2021.
BIGGER BUYBACK?
AutoScout24 is the smaller and faster-growing of Scout24’s properties, billing itself as the top automotive marketplace in the European Union although in its German home market it lags eBay’s (EBAY.O) mobile.de.
“AutoScout24 is not a business that has passed its sell-by date,” said Hartmann. He declined to comment on speculation that publisher Axel Springer (SPRGn.DE) and car trading platform AUTO1 may be interested.
German property site ImmobilienScout24 is, by contrast, more mature and profitable. Sources close to Elliott reckon that ImmobilienScout24 would be worth 5 billion euros as a standalone business – almost as much as Scout24’s current market valuation.
The classifieds group has been left facing uncertainty after a takeover bid, at 46 euros per share, by Hellman & Friedman and Blackstone failed earlier this year, despite management’s recommendation that shareholders accept the offer.
That bid attracted the attention of activists including Elliott, which has disclosed a stake of more than 7%, and London-based Pelham Capital which has built a slightly larger position.
Scout24’s guidance for leverage of up to 3.5 times implies that it could spend an extra 150-180 million euros on share repurchases next year, company sources said. Leverage is seen at 3 times after the buyback already proposed by management.
The company will update shareholders on its deliberations at a capital markets day on Nov. 26.
Source: Reuters.com