Domain left high and dry as Antony Catalano makes shock exit

The Fairfax plan to create a growth option around its Domain real estate listing has taken an embarrassing hit.

Antony Catalano. Illustration: Tom Jellett.

The grand Fairfax plan to create a growth option around its Domain real estate listing has taken a hugely embarrassing hit with its star CEO Antony Catalano quitting just two months after the float.

The explanation given for his departure — putting his family first — raises even more questions about just what is going on at Domain and just why Catalano quit.

It’s the football equivalent of Sydney chair Andrew Pridham spruiking the Swans after hiring Buddy Franklin only to see the star quit before his first season.

Only this time it’s worse. Catalano is a close personal friend to Fairfax CEO Greg Hywood, with two of their children in business together. And the timing of the departure suggests there is more news to come.

This is a growth story with no leader and a major shareholder looking a bit silly, to say the least, amid a governance snafu of major proportions.

This was a float that was already tainted by the fact two private equity companies, TPG and Hellman & Friedman, had last year looked and walked away.

There were also question marks over the shadow equity deal with a handful of leading Melbourne real estate agents, who were, and are, still induced to spend more of their clients’ money with Domain in return for a stake in the business.

Catalano is on marriage number three, has eight children and, contrary to rumours, that number is unlikely to increase anytime soon.

One supporter said his departure was a public affirmation of family values, but somehow no one is quite setting that one in stone just yet.

Since he has resigned Catalano will not be getting any termination payment nor payment on the 26-week notice he was required to give when leaving the company.

He is also on a 12-month non-compete with the business.

He resigned just days after the company detailed 4.3 million options heading his way, based on performance.

As things stand, even before the collapse in the company’s stock price yesterday, the options were out of the money, given they had a value of $1.18 per option and an exercise price of $3.54.

The stock closed down 17.2 per cent at $2.75 and Fairfax took a bath, down 9.7 per cent at 65c.

The company owns 258.7 million Domain shares, which means it was down $147.5 million on the stake yesterday. It is now worth $711.4m.

Catalano owns 2.45 million shares, directly and indirectly, which meant he dropped $1.4m on a stake now worth $6.7m. Given his affinity with money, that would not have pleased him.

The money is the least of the worries for Fairfax and Domain chairman Nick Falloon. The company was at pains to say there is a strong management team left, including marketing chief Melina Cruikshank, product and sales boss Tony Blamey, CFO Rod Doyle and sales executives Tom Ainsworth and Simon Kent.

Falloon will take on executive responsibility pending an international search for a new boss, which could well include one in the internal team.

Fund managers were scratching their heads at how, just two months after Fairfax floated Domain, Catalano could claim he now realised the demands of the job were too big. None more than Fidelity, which has just increased its stake from 5.5 per cent to 6.7 per cent of the company.

That was a big bet on a growth story now looking for a leader.

Fairfax’s credibility has also taken an all mighty hit, particularly since it spent much time last year touting Domain under Catalano’s leadership. He is now gone.

Several other rumours abound given his colourful character, but a company spokesman stuck to the official line, saying Catalano had discovered the delights and importance of family life.

For the credibility of the Fairfax board and chief executive Greg Hywood, one might have hoped he had worked that out two months ago.

TPG Capital’s Joel Thickins must be relieved today that he didn’t proceed with a planned $2.8 billion purchase of Domain last year — Catalano was a key player in his deal and had worked closely with him on the transaction.

Catalano is a wealthy man with eight children from three marriages and now has plenty of time free to devote to his Melbourne-based family.

As for Fairfax and Domain shareholders, they have been unceremoniously dumped in a highly embarrassing deal for Falloon and Hywood.

CEO remuneration

While on matters money, the big debate among remuneration of ­directors in Britain is about whether to increase restricted shares as long-term bonuses for chief executives instead of long-term incentive plans.

Building company Persimmon’s chairman, Nicholas Wrigley, has just quit amid an uproar over the $187m bonus awarded to its chief, Jeff Fairburn. The argument is he should have put some cap on the share price-linked plan so the handout would not have ballooned quite so much.

The idea is chief executives would get less restricted shares five years after leaving the company as a trade-off for getting fewer shares.

The debate is how much less and what sort of discount you should apply in working out how many restricted shares would be granted down the track.

Given short-term bonuses are widely abused in Australia, the plan would be to cut them out, increase fixed pay and grant shares for collection five years after the chief has left. That would provide some incentive to grow the company for the long term while fixed pay could obviously be adjusted for short-term performance.

The debate hasn’t hit the front line yet in Australia, but the idea has some merit.

Telstra in cable game

In round terms, one in three bits of data that travel between Asia and the US do so over a Telstra cable.

Yesterday Telstra added to its ­capacity with the $100m purchase of more capacity between Hong Kong and the US.

The long-term plan is to add Telstra services to the cable users so it becomes much more than a network provider.

Telstra has been in the Asian underwater cable game for some 70 years going back to the days of the Overseas Telecommunications Commission, but right now it’s a $1bn business, including $193m in network application ­services.

The latter is the bit that Telstra wants to increase.

The latest deal was in a consortium that included Facebook, China Telecom and Tata Communications.

All three are key joint venture partners and competing players of some note in their own right, which highlights the potential ­opportunities. Big players including Google, Facebook and NTT are increasingly taking ownership stakes in the underwater cables.

Last year the company started construction on a new Singapore cable with archrival SingTel as its partner.

Telstra generates revenues on the cable by selling capacity and, hopefully in the future, service back-up.