Fairfax Media is considering joining a heady rush for floats with a $500 million listing of Domain on the local stockmarket in early 2015.
The publisher is keen to give the real estate business the firepower to compete with News Corp’s REA Group.
Media can also reveal that the strategic option emerged after Kerry Stokes’ Seven West Media proposed buying half of Domain in late 2012, but the deal fell down amid frustration at the pace of talks and resistance from some Fairfax board members.
Sources close to the aborted talks said the terms of the deal were a major sticking point. Seven put a combination of cash and contra advertising from its television and publishing assets on the table to fund the transction. The discussion was also complicated by a failure to reach agreement on the value of the West Australian real estate franchise.
Discussions were led on the Fairfax side by the then chief executive of the digital transaction and classified advertising business Marketplaces, Nic Cola.
The two sides reached an impasse and Seven walked away despite believing that real estate remains the only classified advertising sector in Australia where a duopoly exists (REA and Domain). Seek dominates classified advertising in jobs, while Carsales.com.au leads the automotive sector.
Speculation had been mounting last year that Fairfax might float Domain or initiate a sale process.
In April, Fairfax placed Domain in a separate business unit as part of a major corporate rejig. It also gave Fairfax the ability to replicate News’s structure with REA, which owns websites including realestate.com.au.
News holds 62 per cent of REA, which is now capitalised at $6.5 billion after shares surged 87 per cent in the last year, a rise that has not gone unnoticed by Fairfax executives.
On Thursday, Fairfax broke out the financial performance of Domain in detail for the first time. Chief executive Greg Hywood played down talk of a public offering, although he did not completely rule the option out.
“We have some strategic options (as to) how we build the business, but I’m going to talk about that and I’m certainly not going to talk about an IPO,” Mr Hywood said.
As well as a potential float, another option is said to include a sale, if Fairfax was approached with a valuation close to an IPO target above $500m.
After refinancing cash borrowings of $1.49bn earlier this month, Seven could be tempted to revive its interest after improving the flexibility of its financial position.
Fairfax sources said the Domain business was internally valued at $350m in mid-2013. In August 2012, Morgan Stanley ran the numbers on Domain and attached an equity value of $232m to $464m.
Nationally, REA is the No 1 player in the Australian property market, but Domain has a strong market share in the Sydney and Melbourne markets.
Seven declined to comment.
A spokesman for Fairfax said in relation to a potential float of Domain in early 2015 that the assertion was “totally incorrect and we reject it”.
Last week, the Fairfax board came under renewed pressure from shareholder and mining magnate Gina Rinehart.
Mrs Rinehart’s key adviser on her $200m investment in Fairfax expressed frustration that the company was not growing revenues fast enough.
“They continue to move at glacial speed on key areas of revenue growth and value-creative mergers that have synergies like the radio assets,” John Klepec, chief development officer at Mrs Rinehart’s Hancock Prospecting, told The Australian.
Fairfax shareholder and chief executive of fund manager Allan Gray, Simon Marais, urged Fairfax to focus on building Domain’s revenues “for two more years before a float or sale”.