Fairfax Media may be casting adrift one of its biggest cash generating units when it sells Trade Me, but it needs the money to support its ailing newspapers, analysts say.
Fairfax on Monday sold its 51 per cent holding in New Zealand online auction side Trade Me for $3.05 a share to raise $616 million.
"The proceeds from the sale will reduce Fairfax's net debt and will provide us with a very strong balance sheet and the financial flexibility to invest and to complete the company's structural transformation," Fairfax chief executive Greg Hywood said in a statement.
Morningstar analyst Tim Montague-Jones said while the sale would cut debt, it would also deprive Fairfax of the strong cash flows that Trade Me generated.
"They are doing what they have to do, but I guess it is also a reflection of the fact that they need the money because the underlying business, their newspaper business, continues to suffer," Mr Montague-Jones said on Monday.
"It shows the structural uncertainty of the whole business that they need to cash up now and pay down debt."
Fairfax shares rose on the deal, climbing 0.5 cents, or 0.98 per cent, to close at 51.5 cents.
The stock has fallen about 27 per cent so far in 2012.
"Fairfax shares dropped a huge amount this year because focus turned on their ability to meet debt," City Index chief market analyst Peter Esho said.
After the close of trade on Monday, Trade Me confirmed the sell-down had been completed and that Mr Hywood had resigned from the Trade me board.
Trade Me chairman David Kirk said shares had been placed with a broad range of institutions and that demand had been strong.
"The response shows Trade Me is well-regarded by the market and that investors are confident about the company's performance," he said. "The sell-down means there is a significant increase in the free float and liquidity of Trade Me shares, and ultimately that makes the company more investable."
As Fairfax sold out of its best-performing digital asset, it was reportedly set to form a partnership with Australian technology investment company netus.
Netus is chaired by former Microsoft executive Daniel Petre, with former head of eBay Australia Alison Deans chief executive of the company.
The pair are believed to be helping Fairfax identify new digital business opportunities as part of the deal.
Details of the deal would be finalised later this week, according to Fairfax's Financial Review on Monday.
Morningstar's Mr Montague-Jones said the mooted tie-up with Fairfax was a sound strategy, but one that would have little immediate impact on the bottom line.
"It is a long game, it is a scattergun approach," Mr Montague-Jones said.
"Out of the 10 businesses they invest in, eight of them will probably achieve very little but the few that do achieve could potentially turn into a business which maybe they will IPO out into a separate entity."
Rating agency Standard & Poor's lowered its earnings forecasts for Fairfax on news of the sale of Trade Me, but said the deal would not affect its ratings outlook for the group.
The agency revised its earnings before interest, tax, depreciation and amortisation forecast (from continuing operations) for 2012/13 to $315 million-$335 million, from $410 million-$430 million.
Trade Me shares are expected to resume trading on Tuesday, after being placed in a halt at $3.22.