INTERNET: 58.com Slashes Jobs At Newly Acquired Recruitment Site
Bottom line: A worker rebellion over layoffs at an online recruitment site being bought by 58.com underscores the company’s inexperience at M&A, even though the purchase itself looks like a good move.
Chinese media are flocking to news that leading online classified ad site 58.com (NYSE: WUBA) has begun slashing jobs at its newly acquired ChinaHR, just days after it announced it would purchase the struggling online recruitment site. The move looks a bit hasty and perhaps extreme, and also comes across as just slightly ironic since many people now losing their jobs may soon have to use rival services to find new work.
But irony aside, this particular story looks quite similar to something that happened just 2 years ago at the very same ChinaHR. In that case workers mutinied and even briefly held an executive hostage after its then-owner, US online recruitment giant Monster Worldwide (Nasdaq: MWW), also tried to lay off employees as part of its own plans to sell the company. If history repeats itself, which is showing early signs of happening, 58.com could be looking at some turbulent times ahead over the next week or two.
According to the latest headlines, 58.com has laid off hundreds or even up to 3,000 employees at ChinaHR (Chinese article), less than a week after it announced it was buying the underperforming company from Irish firm Saongroup. (previous post) After the deal was announced last week, I noted that the purchase looked like a nice, relatively small acquisition that would complement 58.com’s core online advertising services that have led many to call it the Craigslist of China.
No terms were given for the deal, implying it was relatively small at probably $50 million or less. That’s not too hard to believe, as the company was a relatively early arrival to the field, but then gradually got overtaken by better-run rivals under Monster’s troubled ownership. I never really understood the logic behind Saongroup’s purchase of the company in early 2013, as the Irish firm didn’t appear to have any experience in China and probably was ill equipped to turn around its newly acquired asset.
So again it wasn’t a surprise when Saongroup decided to sell ChinaHR, and now it also doesn’t come as a huge surprise that 58.com appears to be laying off nearly all of the company’s workforce. My guess is that 58.com probably intends to essentially scrap the current ChinaHR operation, and run the business directly out of its own existing operations that are probably far more efficient.
Of course ChinaHR employees probably aren’t too thrilled with that idea, and the latest reports say they are protesting loudly about the newly announced layoffs at more than 20 of its offices around China. Employees didn’t like the severance packages they were offered, and apparently have been locked in negotiations with top management in their Beijing office trying to get a better deal.
China Internet historians might recall the similar standoff that occurred in early 2013 when Monster announced the sale of ChinaHR to Saongroup, and faced a similar rebellion when workers failed to accept proposed severance packages. (previous post) The negotiations ultimately got quite ugly, with a top manager effectively being held hostage in his own office until the matter was finally settled with the help of outside negotiators.
Perhaps 58.com was mindful of this troubled history at ChinaHR when it purchased the company, and it appears it probably was planning all along to lay off the entire staff and simply fold the business into its own core operations. From a strategic standpoint that certainly seems like a good strategy.
But this kind of rebellion does highlight 58.com’s relative inexperience at executing this kind of takeover that is becoming an increasingly important part of its growth strategy. At the end of the day I’m sure the matter will be settled and life will continue at 58.com, though it’s executives can expect some turbulent times over the next couple of weeks.
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