UK’s Rightmove attracts takeover interest from Murdoch’s REA

(Bloomberg) — Rightmove Plc, Britain’s largest real estate portal by market share, has attracted takeover interest from Australian real estate listing provider REA Group Ltd., sparking a surge in London-listed shares.

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REA Group, part of Rupert Murdoch’s sprawling empire, said on Monday it was considering a possible cash and shares offer for Rightmove. The Richmond, Victoria-based company, which is controlled by News Corp., said it had not approached the British firm or had discussions about a bid.

Shares in Rightmove rose as much as 25% in London on Monday, the biggest gain of the day, increasing its market value by around £1bn to £5.4bn (£7.1bn of dollars). REA fell 5.3 percent in Sydney, the most since December 2022, on fears it may have to issue shares to finance a deal.

Rightmove has maintained steady revenue growth in recent years and its future prospects are bright as the UK housing market is expected to rebound due to falling interest rates and the new Labor government’s efforts to increase housing supply through a series of planning reforms. Any deal would increase the scale of REA, which is the biggest player in Australia’s online real estate industry and has already expanded into other markets, including India.

The REA revelation, sparked by media speculation, is now forcing the company to make a decision one way or the other. Under the UK’s takeover code, REA has until 5pm on September 30 to announce a firm intention to make a bid.

The potential deal is a signal of the primacy of scale in the digital real estate brokerage business. REA has a market value of $US27 billion ($18 billion) and trades at nearly double local competitor Domain Holdings Australia Ltd. on a price-to-earnings basis, largely due to its larger 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 with a large amount, while Citigroup Inc. believes that the REA would try to limit this to around 30%. A key concern is that the approach comes at a time when there is increased competition in the UK residential portal market, according to Siraj Ahmed, an analyst at Citi in Melbourne.

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

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However, Citi’s Ahmed said REA could help Rightmove expand into trade and mortgages, as well as harness data to strengthen the business.

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

Certainly, investors have become wary of the patchy record of corporate Australia making real gains from successful overseas acquisitions. Moreover, any REA deal would require an equity raise of at least $6.1 billion, or about 23 percent of its current market capitalization, to be leveraged, Bloomberg Intelligence analysts calculated.

“Its top-line valuation supports equity growth, but there would be execution risk in the deal versus the shareholder distribution,” analysts wrote in a note on Monday.

What Bloomberg Intelligence Says:

“REA Group, controlled by News Corp, makes strategic sense in considering a bid for Rightmove, given the property portal’s existing network (mostly in Australia and India). This expertise could be important to Rightmove, although a significant premium may be required to influence shareholders.”

— Tom Ward, BI Industry Analyst.

–With assistance from Sam Nagarajan.

(Updates with UK housing market context and analyst commentary.)

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