Murdoch’s $30b property jewel faces rebel rich-lister with a cause

Donald Trump is keeping faith with Rupert Murdoch’s money machine Fox News, but our home-grown media mogul surely would be noticing the barbarian at the gates of his precious print empire, News Corp.

Strictly speaking, his property listing empire REA Group is not part of News Corp.

But News’ controlling stake in the wildly successful property play is a crucial supporting pillar for its challenged media business – much like Nine Entertainment’s majority stake in Domain is reckoned to help keep it safe from potential predators and a break-up.

REA Group’s success has helped underpin Rupert Murdoch’s News Corp.Credit: GC Images

But REA’s cosy dominance of Domain – and the lucrative real estate listings duopoly – has been challenged by US group CoStar’s bid for the latter.

Nine Entertainment – the owner of this publication – has indicated it will support an offer at the current price, and the numbers look pretty simple.

The offer, which was raised to $4.43 a share last month, would represent a 42 per cent premium on Domain’s closing share price on February 20, and represents a multiple of earnings that compares favourably with global deals in this sector.

But the financial market numbers also paint a pretty clear picture of the winners and losers from this potential deal.

The bid for Domain, which landed in February, has added about $700 million to the property group’s valuation.

Over the same period, REA’s market valuation has plunged more than $7 billion from its record high in February as investors get to grips with the prospect of real competition.

CoStar has added well over $4 billion in value over the same period, which would at least partly reflect the group’s golden opportunity with a chronic underperformer such as Domain in a lucrative two-horse race.

When Domain listed in 2017, it was valued at a quarter of the market capitalisation of REA. If it had kept pace with this metric, Domain would have been worth about $8 billion now, not the $2 billion it was valued at before the CoStar offer.

CoStar founder and CEO Andy Florance arrives at Joe Hockey’s annual Bondi Partners garden party last month.Credit: Oscar Colman

What does a giant like REA have to fear from CoStar and its larger-than-life founder, Andy Florance?

Now let’s get this out up front. CoStar denies that Florance wielded his black semiautomatic pistol during a video meeting with executives from his home in rural Virginia in 2020 – as reported by Business Insider.

“Andy Florance is a well-trained and licensed shooter who is passionate about firearm safety,” a spokesman says.

CoStar also takes issue with Business Insider’s reports, based on interviews with dozens of former employees, detailing Florance’s unflinching drive for domination of rivals. This included allegations of a workplace driven by relentless surveillance, humiliation and abrupt firing of employees who did not meet exacting standards.

“It grossly mischaracterises the employee experience within CoStar Group and the commitment of our leadership team to provide a respectful and professional work environment that benefits our 6600 employees and all those we serve,” the CoStar spokesman said in response to the report.

The most telling allegation from Business Insider’s account was of Florance’s dogged determination to win.

At a sales event in 2008, Florance reportedly unveiled a caged gerbil called Doug – named after Doug Curry, the head of rival operator Xceligent.

Florance claimed that the gerbil would live longer than Curry’s tenure at the rival group.

In 2017, Xceligent went bankrupt after losing a legal battle against CoStar.

Nine Entertainment has indicated it will support the bid for Domain.Credit: Joe Armao

Putting these allegations to one side, the one fact that matters is that Florance has built CoStar into a $53 billion business, starting from the basement of his father’s home in the 1980s.

It is fair to say that, if a binding offer is made and accepted for Domain, REA faces a brutal shake-up of its lucrative business, which currently operates more like a monopoly than a duopoly.

REA’s domination is so overwhelming that analysts at Morningstar suggest increased competition from CoStar would allow REA to increase prices even further without regulatory scrutiny.

As for Nine, the question is, what would it do with the $1.4 billion it would pocket from a successful Domain sale after tax?

The cash is expected to be shared with investors, pay down debt and provide financial firepower for organic growth opportunities and acquisitions.

The challenges for Nine’s management is simple: how much cash will investors demand?

And how does Nine convince shareholders that a company which struggled to succeed with a property duopoly can be trusted to invest in the far more competitive media sector?

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.