Macquarie Research analysts noted the disparity in market power recently when Domain increased listing prices by 12 per cent and watched its volumes drop. A larger price rise at REA did not prevent its volumes rising further.
To give an idea of CoStar’s impact, the market sent REA’s share price plunging more than 10 per cent on Friday.
At the same time, Domain shares surged 40 per cent to $4.35, higher than the $4.20 offered by CoStar, and Nine shares jumped almost 22 per cent.
CoStar was meant to be consolidating its presence in Europe, but the opportunity proved too tempting.
The company’s chief executive Andy Florance said at a recent earnings announcement that it is “not possible” for REA to sustain its current growth trajectory. Not great news for Murdoch, who has relied on the soaring value of REA to buttress News Corp’s market cap.
And the timing was exquisite.
Domain’s interim boss, former REA Group boss Greg Ellis, started on Monday.
On Tuesday, the interest rate cut sent call volumes to mortgage brokers soaring as potential buyers checked on their buying power. It is a rising tide that will boost even a laggard like Domain.
Bloomberg Intelligence says Domain earnings could rise 40 per cent this year as “demand rises with (RBA) interest rate cuts”.
CoStar has not spoken publicly about the offer, but its track record in the US lays a clear path for revival.
Its listings platform, Homes.com, went from sixth place to the No.2 player by web traffic,- thanks to a $US1 billion investment in sales, marketing and technology.
It is the sort of funding Domain desperately needs to turn around its performance. Especially on the technology front.
Part of CoStar’s strategy is to deploy its technology across different markets to give its operations an edge over rivals like REA. The impending multi-billion dollar acquisition of US 3D spatial mapping company Matterport is a case in point: CoStar is using its technology for 3D mapping of properties that could offer more authentic home simulation tours.
The question is, where does this leave the Domain board, and Nine, which will ultimately decide the fate of this offer?
They are both in the invidious position of saying a cash offer that is more than 40 per cent above its previous trading price undervalues Domain. It is not a great performance indicator for their combined stewardship. But what if Nine takes the $1.5 billion in cash and walks?
Loading
Domain accounts for more than half of Nine’s market valuation. The media group would be left with cash and a business valued by the market at well below the billion dollar mark thanks to the low multiples ascribed to its TV and metro publications amid the worst advertising downturn in a generation.
Bruce Gordon’s 25 per cent economic interest in Nine is all that would be standing between the future of the group and a classic private equity takeover play.
While CoStar’s funding and tech platforms are much-needed by Domain, Nine’s response on Friday highlighted the synergies for both Domain and Nine from its continued ownership and promotion of Domain across its platforms.
“Domain is of strategic importance to Nine’s media ecosystem and our long-term growth strategy. Nine will consider the proposal with a focus on the best interests of Nine shareholders,” it said.
The question might be whether some sort of deal could be hatched where Domain receives both the funding and tech from CoStar, and the promotion benefits of Nine’s platforms.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.
