Domain deal and others look shaky amid market meltdown

CoStar founder and president Andy Florance. Picture: Supplied

Investor fears are growing that a $2.8bn deal for CoStar to buy Domain Group will collapse, along with others, as bidders look to use legal loopholes to extract themselves from acquisitions that now look less attractive on the back of the market correction.

Domain shares were down 5 per cent in early Monday trade, with its market value at $2.67bn and its share price at $4.025 before recovering to close at $4.12.

That is below the recently sweetened $4.43 a share offer price that the Andrew Florance-controlled CoStar agreed to buy the group for last month.

On March 31, Domain, which is 60 per cent owned by Nine Entertainment, said it had entered into exclusive negotiations to sell to CoStar, which was still undertaking due diligence in connection with the transaction.

The Macquarie-advised CoStar could walk away without facing the payment of a break fee should it decide not to move forward with the proposal that it said was its final offer.

A break fee is usually demanded once a Scheme of Arrangement agreement has been signed.

Investors are getting more nervous that CoStar’s $2.8bn acquisition of Domain will collapse or be repriced. Picture: Max Mason-Hubers/NCA NewsWire

Should it still want to buy the business in six months, it could potentially come forward with a lower offer should its share price fall.

Domain was trading at $2.60 per share before CoStar raided the company’s share register to amass a 17 per cent interest and bid for the online real estate business.

The announcement of global trade tariffs by US President Donald Trump has wiped $112bn off the ASX, with the market closing down 4.2 per cent.

Market experts say whether a number of deals collapse will depend on whether the market recovers later in the week, with some betting that the latest sell off is just an interim market over reaction.

But one view is that the declines may continue amid concerns that the crash is the correction that many believe was due to happen.

There’s also growing concerns over the private credit market and the impact on the market and other deals.

Some investors such as Regal, which recently lost about $200m on its investment in biotech Opthea have been heavily sold off.

Regal Partners shares were down over 7 per cent in what is likely to hit the personal wealth of the executives that controlled the company it merged with, VGI Partners, such as shareholders Doug Tynan and Rob Luciano.

CoStar is listed on the US-based Nasdaq exchange with a $US31bn market value, and its share price has fallen more than 8 per cent in five days.

Meanwhile, James Hardie’s US-based $14bn takeover target Azek is down 5 per cent in the past five days to $US6.65bn with some questioning whether this could create an opportunity for the building materials operator to extract itself from a deal highly unpopular among James Hardie’s Australian investors.

Some James Hardie shareholders are believed to be keen to place pressure on directors and chief executive Aaron Erter to step down at its annual general meeting later this year.

However, deal sources say that the legal terms of the contract are fairly watertight from Azek’s perspective.

Meanwhile, the other transaction in focus is Peabody Energy’s agreed deal to buy Anglo American coal mines last year.

With US-based Peabody Energy’s share price falling 60 per cent in six months on the back of declining coal prices, some say that the US group may be eager to now extract itself from an agreement to buy Anglo American’s Australian coal mines for $5.8bn when the commodity price was at a higher level.

A second fire at the Moranbah mine in Queensland has recently occurred, say sources, which may also create an opportunity to back away from the acquisition.

Other live transactions in focus are whether Bain Capital and CC Capital now follow through on a plan to buy financial group Insignia for $5 a share.

It may also lead to HMC Capital backing away from a $950m transaction to buy renewable energy business Neoen.

Some believe the volatile market raises questions over whether US-based Cosette completes its $672m buyout of Mayne Pharma.