The Domain Holdings Australia Ltd (ASX: DHG) share price has risen more than 60% so far this year.
Domain shareholders have enjoyed a surge in the company's stock value due to news of a looming takeover deal.
In February, US real estate company CoStar Group, Inc. (NASDAQ: CSGP) made an offer to acquire Domain valued at $4.20 per share.
Following news of the deal, the Domain share price jumped to $4.42 in early March, up around 70% from its price at the start of the year.
CoStar has since come back to the negotiating table with an offer of $4.43 per share.
CoStar told Domain that the offer represented its best and final price.
And Domain's board voted unanimously to engage with CoStar to facilitate due diligence.
Nine Entertainment Co. Holdings Ltd (ASX: NEC), Domain's majority shareholder, supports Domain's decision to proceed with the deal.
The media company, which owns about 60% of Domain, would collect about $1.4 billion if CoStar acquired Domain.
As CoStar conducts its due diligence, the Domain share price continues to recover after being swept up in recent market turbulence.
Domain shares are currently trading at around $4.06, having sunk to $3.82 as Trump's tariffs announcements took a toll on markets.
As such, CoStar's current offer price sits around 9% above Domain's market value.
Are Domain shares cheap?
Essentially, Domain's share price will be determined by what another party is willing to pay.
Taking this fundamental factor into account, and looking at CoStar's offer price of $4.43, Domain shares are currently cheap.
But I think Domain, with a market cap sitting around $2.6 billion, has looked cheap for a while now.
Back in late 2021, Domain shares were trading at around $6.
As such, CoStar's offer falls short of the highs the digital real estate company was achieving a few years ago.
And with REA Group Ltd (ASX: REA), Domain's key competitor and dominant player in the space, currently valued at around $31 billion, clearly there is scope for Domain to close that gap.
CoStar is well-equipped to shake up Australia's online real estate advertising market.
The US company, valued at around US$30 billion, has the funds and experience to do so.
It seems clear CoStar recognises the value in Domain and sees its potential to eat into REA Group's market share.
