(Bloomberg) -- CoStar Group Inc. offered to buy Domain Holdings Australia Ltd. in a deal valuing the property portal at A$2.65 billion ($1.7 billion), betting that falling interest rates will boost local home sales. Domain shares surged above the value of the bid.
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The US real estate analytics firm offered A$4.20 in cash for the rest of Domain after buying almost 17% of the stock on Thursday at the same price.
Domain’s board said Friday it’s assessing the offer, which is 35% above the stock’s closing price of A$3.12 on Thursday. CoStar wants exclusive due diligence before any deal goes ahead.
Shares in Domain soared as much as 53% at the open in Sydney. The stock was up 41% at A$4.38 at 11:24 a.m. local time, indicating investors expect a higher offer will be needed to win over Domain’s directors.
CoStar is swooping only days after Australia’s central bank cut interest rates for the first time since 2020. The proposal extends a global wave of consolidation and attempted takeovers in the property sector as borrowing costs around the world start to fall. REA Group Ltd., Domain’s main rival in Australia, made several offers — all of them rejected — for the UK’s Rightmove Plc last year.
Shares in Nine Entertainment Co. jumped 19% in Sydney after Domain disclosed the approach. The Australian television broadcaster and newspaper publisher owns 60% of Domain. It would receive a cash windfall if CoStar’s pursuit is successful, or if a bidding war breaks out for the portal. REA fell 10%.
What Bloomberg Intelligence Says:
Domain may reject CoStar’s recently announced cash acquisition offer valuing it at A$4.20 a share, and demand a holding premium of at least 50% to its Feb. 20 share price of A$3.12 — Jack Baxter, Matt Ingram
The local property market is particularly sensitive to interest-rate fluctuations because most mortgages are on variable, rather than fixed, rates. That means property portals like Domain tend to see more transactions when interest rates are low or falling.
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While CoStar’s newly acquired stake in Domain makes it harder for a rival bidder to interfere, the strategy also carries risk. Increasingly favorable conditions for residential property businesses also make boards wary of selling at too low a price. REA made four unsuccessful takeover proposals in less than a month to Rightmove before walking away from the British property portal. If Domain resists in the same way, CoStar risks being left with a minority stake in a business in a distant market.
(Adds shares of Nine Entertainment in the sixth paragraph, comment from Bloomberg Intelligence in the seventh.)
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