The day Domain overtook Nine; Is ARN now a takeover target instead of predator?
The day Domain overtook Nine; Is ARN now a takeover target instead of predator?
Welcome to a midweek edition of Unmade. Today: A media milestone as Domain’s market cap overtakes its parent company; and the ARN Media share price jumps.
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From offspring to media daddy - how Domain passed Nine
Really, it’s only symbolic, but jeez, it feels symbolic. Domain, the real estate platform owned 60.1% by Nine, is for the first time worth more than its parent company.
Yesterday, the market capitalisation of Domain rose by 2.2% to $2.06bn. Nine is worth $2.02bn. That’s a milestone.
If you want to measure enterprise value - how much it would take to buy a business when you take responsibility for the debts too - then Nine is still larger. It has a net debt of $489.2m to Domain’s $150.8m. That’s not something to boast about though.
With an EBITDA (earnings before interest, taxation, depreciation and amortisation) profit of $137.1m on a turnover of $391.1m in the last financial year, Domain is still a smaller scale business than Nine, which had an EBITDA of $517m on $2.6bn turnover.
But market capitalisation captures what investors believe a business will be worth in the future. It implies that they think Domain has better prospects than the rest of Nine put together.
While Nine’s stake in Domain is worth $1.2bn, that means the market currently assigns $780m to the rest of Nine’s assets, including Stan, its TV operation, radio operation and news mastheads. As it stands, Nine would arguably be worth more to shareholders broken up.
The moment has been a long time coming. Domain’s life as a brand began as a section of the Fairfax newspapers in 1996, before the domain.com.au website launched in 1999.
A pivotal moment came 14 years ago when Antony Catalano - these days proprietor of Australian Community Media - launched The Weekly Review in Melbourne. The former Fairfax executive devised a business model that saw local real estate agent groups take equity in TWR. The agents began to shift money out of Fairfax, with half the revenue moving across within the first few months.
The day he was announced as CEO of Fairfax Media - December 6, 2010 - Greg Hywood picked up the phone to Catalano. “I’m calling to fix this fuck-up you’ve created for us in Victoria,” he told The Cat.
Fairfax bought out Catalano and he came over to run Domain. In 2017, faced with a sagging share price, the Fairfax board floated Domain on the ASX.
Catalano was gone within months of the float. He claims that his final words to Domain chairman Nick Falloon were: “See that square thing in front of you? It’s a computer. See the round thing at the side? It’s the on switch. You should learn how to use it.”
The fortune Catalano made from selling The Weekly Review to Fairfax funded his acquisition, alongside Alex Waislitz, of ACM, after Nine took over Fairfax Media but didn’t want the regional papers. More recently Catalano has been building View Media Group as a (distant) third player behind REA Group and Domain.
Falloon went on to become deputy chair of Nine following the takeover. He left the Nine board in 2022 although he remains chairman of Domain, despite hostile fire from Nine in recent weeks on the pages of its Australian Financial Review.
Which brings us on to REA Group, majority owned by News Corp. REA, which has global interests, is way bigger than Domain. It has a market cap of $28bn and is widely acknowledged as the best investment Lachlan Murdoch ever made for News Corp.
Just like Nine, real estate is these days a far more significant source of value for News Corp than its news operation. In the last financial year, News Corp’s news media segment delivered EBITDA profits of US$120m while its real estate business delivered US$508m.
It says a lot about News Corp’s priorities that REA Group pushed so aggressively to acquire the UK player Rightmove with a $12bn bid which was rebuffed this week.
Its lucky that Hamish McLennan - chair of both REA and ARN Media - has a thick skin. He’s been getting a lot of rejection lately.
Sadly, for fans of things like the role of journalism in a democracy, the business model of news is not as elegant as that of Australian real estate, where agents are incentivised to spend their clients’ money on marketing campaigns for their properties.
Classifieds are the least sexy area of media, and the most lucrative.
Hear the story of how Greg Hywood brought The Cat back into the Fairfax fold:
ARN surges as Samuel Terry and Spheria tighten grip
Google Finance, which is our data source for the Unmade Index, suffered some end-of-quarter glitches on Monday and Tuesday, which means we can’t accurately share how much the Unmade Index moved yesterday. However, it closed on 464.3 points, which was up slightly on Friday’s close of 462.5 points.
The biggest mover yesterday was ARN Media, which is starting to look as much a takeover target as a predator after its so-far failed stalking of Southern Cross Austereo.
ARN’s share price jumped by 9.1% as Samuel Terry Asset Management revealed it had upped its stake from 7.4% to 17% and Spheria moved up from 5.7% to 6.8%. Investment house Allan Gray, which has also been selling down its stake in SCA, appears to have been the seller, telling the market it is no longer a significant shareholder in ARN.
SCA slipped another 2.1% yesterday, falling back close to its historically low price. Yesterday the Australian Financial Review reported that SCA is near to closing deals with Paramount and Seven West Media to sell its Ten and Seven affiliated regional TV licences.
Meanwhile, Ooh Media had a solid day, rising by 1.5%.
Time to leave you to your Wednesday.
We’ll be back with an audio-led edition tomorrow. I’ll be talking to the founders of Mercha.
Have a great day.
Toodlepip…
Tim Burrowes
Publisher - Unmade
tim@unmade.media
I genuinely wonder whether Aussies will wake up to the fact that they are, according to The Guardian recently, "paying the most expensive advertising fees in the world to sell their homes online" and where the cost of selling properties online is 'negligible' in other markets like the US...