Analysts weigh in on REA’s takeover interest for London-listed Rightmove

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Analysts weigh in on REA’s takeover interest for London-listed Rightmove

Rightmove, the ***’s biggest property portal by market share, has attracted takeover interest from *********** real estate listing provider REA Group, spurring a rally in the London-listed stock.

REA Group, part of Rupert Murdoch’s sprawling empire, said Monday it’s considering a possible cash and share offer for Rightmove. The Richmond, Victoria-based company, which is controlled by News Corp., said it hasn’t approached the British firm nor had any talks about a bid.

Shares of Rightmove soared as much 27.6 per cent on Monday in London, the biggest intraday gain on record, boosting its market value by around £1 billion to £5.6b ($10.8b). REA tumbled 5.3 per cent in Sydney, the most since December 2022, amid concerns that it may have to issue stock to fund a deal. On Tuesday, REA shares closed up 0.1 per cent to $207.69.

“Rightmove has not received any approach from REA about a possible offer for the company,” according to a statement from Rightmove on Monday. “Rightmove shareholders should take no action.”

Rightmove has maintained steady revenue growth in recent years and its future prospects are looking bright as the *** housing market is expected to pick up on declining interest rates and efforts by the new Labour government to increase housing supply through a slew of planning reforms. Any deal would boost the scale of REA, which is the largest player in the *********** online real estate industry and has already expanded into other markets including India.

REA’s disclosure, triggered by media speculation, now forces the company into a decision one way or the other. Under the ***’s takeovers code, REA has until 5pm on September 30 London time to announce a firm intention on whether to make a bid.

The prospective deal is a signal of the primacy of scale in the digital property-broking business. REA has a market value of $US27b and trades at almost twice that of local competitor Domain Holdings Australia on a price-to-earnings basis, in large part due to its ******* user base and growth abroad.

“A combination of the two businesses would provide a significant opportunity to unlock shareholder value,” REA said in a statement.

Analysts at Panmure Liberum expect any deal to come at a large premium, while Citigroup Inc. believes REA would try to limit this to around 30 per cent. A key concern is that the approach comes at a time when there is increased competition in the ***’s residential portal market, according to Siraj Ahmed, an analyst with Citi in Melbourne.

While Rightmove enjoys the largest market share in the *** property portal market, rival OnTheMarket Plc recently launched an expansion drive after being acquired by US real estate firm CoStar Group Inc. Giles Thorne, a Jefferies analyst, described CoStar’s investment in OnTheMarket as “a serious competitive threat.”

Still, Citi’s Mr Ahmed said REA could help Rightmove to expand into commercial and mortgages, as well as in leveraging data to strengthen the business.

REA said it would add “investment and innovation” to Rightmove following any acquisition. The enlarged group would deliver “robust growth with strong margins and significant cash generation, enabling continued capital appreciation and shareholder returns,” it said.

To be sure, investors have become wary of corporate Australia’s patchy record realising real gains from blockbuster overseas acquisitions. What’s more, any deal by REA would require an equity raise of at least $6.1b, or about 23 per cent of its current market capitalization, for it to be accretive, Bloomberg Intelligence analysts have calculated.

“Its top valuation supports an equity raise, but there would be ********** risk in the deal versus shareholder distributions,” the analysts wrote in a note on Monday.

Bloomberg

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