Fairfax Will Go Ahead With Domain Spin-Off

This morning Fairfax Media Ltd [ASX:FJX] fell 13% to 97 cents per share. The media company is still up 9% for the year. But this has been thanks to a bidding war between private equity firms TPG Group and Hellman & Friedman.

What happen to cause the Fairfax share price to fall?

This morning, Fairfax said they would go ahead with the spinning-off of Domain.

Fairfax CEO, Greg Hywood said:

We are making excellent progress with preparations and have progressed all of the necessary regulatory approvals to meet our timetable for completion by the end of 2017. We will provide a complete update at our full-year results.

In the same announcement Fairfax also updated investors. While the group’s revenues had dropped 6%, revenues for Domain were up 10%, with its digital business up 22% and growing.

It’s clear which business within Fairfax is pulling the company along.

Future for Fairfax

Investing in spin-offs can be a very promising strategy. A lot of the time businesses are spun-off simply for the benefit of shareholders. The idea is, with its own management and strategy the spun-out business will do far better on its own than within a conglomerate structure.

Fairfax Chairman, Nick Fallon told investors:

We believe that our shareholders should be the beneficiaries of the value to be unlocked from our unique combination of assets and the strategic plans in place for each of our businesses.

I think you should consider Domain as an investment. Just look at their rival REA Group Ltd [ASX:REA]. The stock is up more than 20% year to date. And it trades on a price-to-earnings ratio of 32-times, hinting there could be more growth to come.

Of course I’m not suggesting you should buy Domain at any price. The higher you pay, the lower your potential returns will be. But if the stock starts to trade at an attractive price, it might be worth adding to your portfolio.

Regards,

Härje Ronngard,

Junior Analyst, Money Morning

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