CoStar-Domain deal hopes falling with its share price

CoStar can walk away from Domain without paying a break fee and return six months later at a lower price should ­Domain’s shares fall.

Further doubts are emerging about a $2.8bn Domain Holdings buyout by CoStar as the stock shed further value on Wednesday, suggesting the market is betting a deal is off.

Shares closed at $3.82, far below the $4.43-a-share sweetened offer price from CoStar.

As DataRoom reported online on Tuesday, the market more broadly has come off 20 per cent since the terms of the deal were agreed, and potentially adding to the concern is that CoStar’s activist investors, Third Point and D.E. Shore, have been pushing for change.

CoStar told the market it had formed a capital allocation committee and would review targets for expansion, with new directors joining the board.

With an agreement still to be signed, CoStar can walk away from Domain without paying a break fee and return six months later at a lower price should ­Domain’s shares fall.

CoStar has expanded from commercial property online ads to the residential market in the US and UK with sites homes.com and OnTheMarket, but despite heavy investment has not had the gains it hoped for.

Activists remain keen on CoStar to enter Australia, but perhaps not at the current price.

They want the group to rein in spending in the UK market.

CoStar’s initial offer was $2.65bn, or $4.30 a share, which came after it secured a 17 per cent stake in the business.

Still, CoStar may take the view that buying the business is a one-time opportunity in a market dominated by REA Group (owned by News Corp, publisher of The Australian) and Domain.

Meanwhile, Insignia Financial investors appear doubtful that suitors Bain Capital and CC Capital will follow through on a pledge to buy the business at $5 a share, or $3.35bn.

Insignia shares closed down almost 4 per cent at $3.62, with its market value at $2.5bn.