CoStar makes $1.7 billion play for Australia property classifieds firm Domain

Rewrites story with market context, analyst quote, Nine Entertainment comment, and updated shares

By Scott Murdoch and Byron Kaye

Feb 21 (Reuters) - U.S. property data group CoStar CSGP.O made a A$2.65 billion ($1.69 billion) approach for Australian No. 2 real estate classifieds company Domain DHG.AX, swooping on a lacklustre performer in a market primed for a resurgence.

The deal would be the first Australian foray for CoStar and would reshape dynamics in a market where listing volumes have sagged as high living costs slowed the country's hot housing sector but are improving as interest rates come down.

Domain has for years struggled behind larger classifieds website realestate.com.au, owned by News Corp-controlled NWSA.O REA Group REA.AX, and a new owner could invest in marketing to drive up clicks, which determine how much it can charge for listings.

CoStar offered A$4.20 a share, a premium of 34.6% over Domain's most recent closing price, the Australian company said, adding it was considering the offer. CoStar declined to comment.

Domain shares jumped as much as 45% to a three-year high and were up 39% by midsession at A$4.35, trading above the bid price as investors bet a takeover would go ahead but positioned for a higher offer.

"Domain doesn't have an obvious path out of this predicament (and) could certainly use the support," said Morningstar analyst Roy Van Keulen in a research note which gave a "100% probability of the business being acquired for the proposed offer".

CoStar acquired a 16.9% stake in its target on Thursday.

The deal would bring a capital injection to Domain's 60% owner, newspaper and free-to-air television owner Nine Entertainment NEC.AX, which, like the rest of Australia's media sector, has been grappling with a decision by Facebook owner Meta META.O to cancel content deals.

Nine said in a statement it was considering the proposal.

Shares of Nine were up 23% at their highest level in a year.

Shares of REA were down 11%, while the Australian shares in its 61% owner News Corp NWS.AX slid 7%.

The deal would require Foreign Investment Review Board approval.

($1 = 1.5642 Australian dollars)