OT: MELI ~~~ Mercado May Attract Investors and Rival
Monday August 6, 7:13 am ET
By Kristen A. Lee, AP Business Writer
MercadoLibre's Potential for Growth May Draw Rivals After Initial Public Offering
NEW YORK (AP) -- When MercadoLibre Inc. launches its initial public offering this week, the online marketplace will count on luring investors with the potential growth of the emerging Latin American market.
In its prospectus with the Securities and Exchange Commission, the company said Latin America, which is home to almost 9 percent of the world's population, has one of the world's fastest growing Internet penetration rates.
The company cited statistics from InternetWorldStats.com that Latin America's Internet user base surged more than fivefold between the end of 2000 and May 7.
Scott Sweet, the managing director of advisory firm IPO Boutique, said MercadoLibre will be an attractive buy for investors. The company, he said, "is in highly emerging growth countries, and it has little competition in that region at this time."
The same potential that may draw investors, however, could make MercadoLibre an attractive target for rivals, like its own stockholder eBay.
EBay, which will own an 18.5 percent stake in MercadoLibre after the IPO, reported 50 percent second-quarter earnings growth on July 18. But analysts expressed concern that the number of items for sale on the site fell for the third consecutive quarter, forcing the company to squeeze more money from each transaction.
As of March 31, MercadoLibre had 19.7 million registered users and averaged 2.9 million total listings per month. During the three months ended March 31, the company increased its earnings to $1 million, from $100,000, in the prior year. During the same period, revenue grew 50 percent to $16.5 million, from $11 million.
For growth opportunities, eBay might look no farther than its own backyard.
In its prospectus, MercadoLibre warned investors that a non-competition agreement it had signed with eBay has expired. If eBay launches a competing platform in Latin America, MercadoLibre said it would have a "material adverse effect" on its business.
Francis Gaskins, president of research company IPODesktop.com, believes potential competition from eBay is a danger. He theorized that eBay would have acquired MercadoLibre if it was not interested in expanding into Latin America itself.
EBay would also be a formidable rival. "EBay is a well known brand around the world," Gaskins said. And, he noted, "eBay knows everything there is to know about this company."
In its prospectus, MercadoLibre confirmed it "had the advantage of working closely with eBay in exchanging industry best practices and developing and improving our services and strategy."
Sweet disagreed that eBay will enter MercadoLibre's turf and said he expects their partnership to continue, at least for now. "EBay really needs to concentrate on their U.S. and European market, rather than Latin America, first and foremost," he said.
Instead, Sweet said eBay's investment demonstrates that the company is optimistic about MercadoLibre's prospects, comparing the relationship to Google's past investment in Chinese search engine Baidu.com Inc. Google, which sold the stake in 2006, has since challenged Baidu by expanding its presence in China.
MercadoLibre expects the offering, which totals 16.1 million shares, to price between $16 and $18 per share.
The company will sell 2.6 million shares in the IPO. A group of selling stockholders, including JP Morgan Partners and Chief Executive Marcos Galperin, will offer the remaining 13.5 million shares.
MercadoLibre expects to raise about $40.6 million after expenses from the IPO. The company said the proceeds will be used to repay about $9.3 million outstanding on a loan from eBay and for general corporate purposes, including potential acquisitions or investments.
JP Morgan Securities and Merrill Lynch are serving as lead underwriters for the IPO. RBC Capital Markets and Pacific Crest Securities are also underwriting the offering. The company and its selling shareholders have granted the underwriters an option to buy up to 2.4 million additional shares to cover any overallotments.
MercadoLibre has been approved for listing on the Nasdaq Stock Market under the symbol "MELI."
