On the rugby field of business, your
once-dominant scrum is being shoved around, you can’t rely on your own line out
ball anymore and the opposition backs
seem to be getting faster while yours are slowing down. So what do you do? Buy
a new set of water bottles.

No, it’s not the ARU’s next cunning plan,
but what looks like David Kirk’s first play as captain coach of John Fairfax
Holdings.

Fairfax’s equivalent of the scrum is its real estate classifieds, the line out
its employment ads and the back line is automotive advertising. The new set of
water bottles is an on-line holiday accommodation booking service – as the Oz reports here.

Well, at least the water bottles will look
nice along side the team towels (online dating service RSVP) purchased by the
previous coach. What’s next, new track suits?

David
Kirk is not off to a good start at Fairfax, dumbly
going along with the redundancies without review, opining that there’s not a
relationship between the number of journalists and the quality of a paper and
generally failing so far to show any particular sense of direction.

While he’s still new in the job and hope
springs eternal on the rugby field until your knees or some other body part
gives out, the worry is that this water bottle example could well be the
future.

There are suggestions in some investor
circles that David Kirk is a bit of a deal junkie. It’s what he likes doing
most, rather than the boring slog of execution and incremental improvement.

The big problem though is that, like any
junkie, there is an on-going need to score and keep scoring. Financial
constraints being what they are, that means lots of little deals (water
bottles, track suits, socks), rather than just one or two big ones (an improved
tight five, a new half back). Embarking on a series of little deals means
there’s always something else to be bedded down, but concentration moves onto
the next hit before the last is settled. And do all those small deals ever add
up to a really big impact? Maybe, maybe not – it would depend on a lot of
attention to execution and the boring slog of incremental improvement.

As the SMH’s own Xchange column reports:

New boss David Kirk last month
flagged adding new areas to Fairfax websites to increase online earnings. “Travel and financial
services are areas that we will look at hard,” Kirk said.

So with a first travel acquisition
under his belt, it shouldn’t be too hard to predict what’s on Kirk’s new year
to-do list. An online financial services
guide? An online flight booking site?

So what is Fairfax getting for
the $12.7 million it’s paying for Stayz Australia?
Well the good news is that Stayz is supposed to be making money already, unlike
most of what Fairfax has done on the internet. Fairfax
implies – see the announcement here – the purchase will add to earnings per share from day one, but I’m afraid my
holiday-mood mind can’t quite comprehend that.

Fairfax says the $12.7 million is 9.5 times
Stayz’s forecast 2006 earnings before interest, tax, depreciation and
amortisation, which means Stayz’ EBITDA is expected to be $1.34 million.

Let’s assume this little internet business
has some debt – the Fairfax announcement doesn’t tell us, but most certainly do. Pick a figure
and knock off a few hundred thou’ for the interest bill.

Then there’s the D&A. It’s the internet, there are computers and
evolving technology involved and maybe some writing off to do while integrating
the business with Fairfax systems, so let’s knock off another few hundred thousand.

If there’s much left, the tax man might
like some of it, or maybe there’s a pile of tax losses being carried forward.
Let’s split the difference and just subtract $100,000.

What’s left on the bottom line? Not that
much – certainly not enough to cover Fairfax’s cost of
capital. New water bottles.

But, hey, it’s the internet – it’s still
all about potential. The “relationships with over 500,000 customers,” whatever
that means, could well grow very nicely over time.

It could turn into new water bottles with
their own stand, maybe on wheels. It’s still not a going to get the scrum back
on top.