Fairfax to shrink by more than half after Domain Group split
Fairfax’s equity value will be likely more than halved after the Domain Group splits, with the move costing around $14 million, the company revealed in its shareholders’ explanatory booklet released today.
The split would see Fairfax fall from its current position of 113th on the ASX200 to around 165th, around the same size as Southern Cross Media, while Domain would likely enter the index at 155th, roughly the same as Nine Entertainment.
Fairfax CEO Greg Hywood
Released ahead of the shareholder meeting scheduled for October 31 in Sydney, the booklet detailed the financial position of Domain Group and the effects the split will have on Fairfax.
The company estimates Domain leaving Fairfax would see the parent company lose 16% of its revenue and 33% of profits.
Based on its equity, a post-separation Fairfax would likely fall below both Domain and Nine Entertainment group with a market value of around $970 million.
Fairfax’s divisional financial breakdown
When formally announcing the proposed split in August, Fairfax CEO Greg Hywood laid out the benefits he saw to shareholders in the deal.
In the covering letter to the booklet, Fairfax chairman Nick Falloon said an “increasing focus on each business’ distinct growth agendas and strategic priorities through the support of a dedicated board and management team” would enhance shareholder value over time.
With Fairfax’s board estimating the Australian property advertising market at approximately $826 million in the 2017 financial year with compound annual growth of 17%, it is unsurprising Domain Group will have a higher market valuation.
The actual market value will depend upon how investors will treat the two companies’ market prospects, particularly in light of the Australian property market’s outlook.
What I can’t understand and this booklet fails to explain is how Domain can have print revenue when the print is in Fairfax? Also: given that Hywood has strangled the products, what happens when the SMH and Age and AFR die?
(I have other questions, oike how come the costs are jumping so fast and how can Domain possibly sustain agent equity accretion. But I shall simply wonder at the naked audacity of this.)
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I think part of the story behind rising costs is that Domain will now have to start paying for the extensive marketing it currently gets for free from the rest of the fairfax business (think about all the traffic Domain gets from the extensive editorial coverage/pointers it gets on the masthead websites for example)
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I can’t get through the paywall easily enough to be sure, but the limited reading I’ve done in News Ltd write ups suggests they aren’t being even remotely overt of their own strong financial interest in this development and instead are reporting (gleefully) on the consequences for Fairfax, the true vs imputed value of Domain.
News have got a problem here. They have exposure to the same risks and rewards of the co-associated listings services, and their value. I don’t think its “cool” for a significant news outlet to report on a competitors unbundling, without some very explicit words to the effect: “yea, we have an interest in this story”
Like others, I struggle to understand how cutting domain adrift is good longterm for either fairfax or domain: they have to offset the cash in hand against the future revenue loss, and domain have to pay for things which are at best discounted service if not actually free.
Feels like money being sucked out of the machine to me.
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