Credit: Chase Clark via Unsplash https://unsplash.com/@chaseelliottclark
The media sector in Australia is poised for change, with a potential move to a new owner for Domain.
Nine Entertainment's share price jumped in the wake of a takeover bid for Domain, valuing the online real estate classifieds site at $2.7 billion.
The shares closed 20% higher on Friday at $1.73 as the market recognised that Nine is a clear winner from a higher valuation of Domain, with its 60% share now worth $1.62 billion.
US property group CoStar, which made an on market raid to acquire 16.9% of Nine, has bid for 100% of the issued capital of Domain at $4.20 cash a share, a 35% premium from the last share price before the offer.
This sent up Domain’s share price 40% to $4.37, just under the bid price.
The value of Nine rises about three cents a share for every ten cent a share increase in the valuation of Domain, according to a rough calculation by market analysts at E&P (Evans and Partners).
The news of the takeover also dragged on the shares of REA, which runs Domain competitor realestate.com.au, falling 11% on Friday to $236.18. News Corp, which owns 61% of REA, saw its shares down more than 6% on Friday to close at $51.40.
Analysts said investors could be anticipating CoStar, with deep pockets, could take market share from REA.
"In our view, the vendor-paid advertising model could make it easier for CoStar to compete in Australia (given listings coverage is already at parity),” said analyst at Citi, as reported by Rudi Filapek-Vandyck of FNArena.
“But we see it as difficult to break the network effects of the #1 player and see REA as having plenty of cost base flexibility to increase marketing spend if it needs to.
"Further, REA's product road map underpins yield growth for the next two-three years and is unlikely to be impacted by competitive dynamics."
What could Nine do with the realisation of such an important long term asset? One option would be to return $1.5 billion, or 95 cents a share to shareholders
Nine now has to decide whether it's a pure media business, with its television, radio and publishing interests, or whether it is a long term investor in Domain.
“Domain is of strategic importance to Nine's media ecosystem and our long-term growth strategy,” Nine said in a statement to the ASX.
“Nine will consider the proposal with a focus on the best interests of Nine shareholders.”
Analysts at Jarden noted it is unclear whether Nine would be a seller at the offer price.
Nine’s options include taking Domain private and maintaining its 60% stake or selling down to, for example, 50%.
Domain reported earlier this month a 7.4% lift in revenue to $217.2 million for the half year to December, and net profit was up 28% to $33.1 million.
Then the company said it was strengthening collaboration with Nine, with cross platform branding opportunities during the recent Australian Open.
“We have also leveraged the power of Nine in the launch of a Victorian edition of Prestige magazine,” Domain said.
Nine, like most media feeling the pinch from a challenging advertising market, is due to release its half year results tomorrow (Tuesday).
An early response to the takeover bid is unlikely at the results announcement.
However, Nine has in the past spruiked as a key strength the synergies between its assets and Domain.
“We continue to see opportunities for Nine and Domain to work more closely, to build audiences and data-backed insights to the benefit of both companies,” chair Catherine West told shareholders at the company’s AGM in November.
Acting Nine CEO Matthew Stanton pointed out to shareholders that 60%-owned Domain contributes more than half Nine’s market valuation.
“We believe Domain’s competitive market position is supported strongly by Nine’s media assets,” he said in November.
“Not only does Nine deliver material audiences to Domain, Nine also provides marketing support, through brand integrations and audience referrals, through publishing and video content created by Nine; through the economies of scale for printing and more recently, through Nine’s bespoke AI tool, Nine Ad Manager, which enables a video listing to be served in targeted areas via 9Now.
“As our business becomes more digital, there is a growing benefit to Nine, with Domain contributing its knowledge and understanding of its consumers to broaden the value of the data which drives our Integrated Audience Platform, enabling both incremental consumer engagement as well as enhanced targeting for advertising.”
Nine's share price:
Have something to say on this? Share your views in the comments section below. Or if you have a news story or tip-off, drop us a line at adnews@yaffa.com.au
Sign up to the AdNews newsletter, like us on Facebook or follow us on Twitter for breaking stories and campaigns throughout the day.