Invezz.com - REA Group’s £5.6 billion ($7.32 billion) takeover offer for Rightmove (LON:RMV), the UK’s largest real estate portal, has been rejected.
The Australian property listing firm, which is 62% owned by Rupert Murdoch’s News Corp, proposed a cash-and-stock deal that would have seen Rightmove shareholders receive a 27% premium on their shares.
With this move, REA aimed to expand its footprint in lucrative international markets. Despite the rejection, REA may consider going directly to shareholders or sweetening its offer to revive the deal.
Rightmove’s rejection of REA Group’s £5.6 billion offer
Rightmove, the UK’s leading real estate platform, has declined a £5.6 billion ($7.32 billion) cash-and-stock acquisition proposal from Australia’s REA Group.
The offer, which included 305 pence in cash and 0.0381 new REA shares per Rightmove share, represented a 27% premium to Rightmove’s closing price of 556 pence on 30 August 2024.
The deal was non-binding and subject to due diligence. Rightmove has not provided a reason for its decision to reject the bid, nor has it responded to requests for comments sent outside regular UK business hours.
What does the rejection mean for REA Group’s growth strategy?
The rejection is a setback for REA Group, which had aimed to accelerate its growth in international markets by acquiring Rightmove.
According to Jefferies analysts, the UK’s housing market is three times the size of Australia’s, making the potential acquisition highly attractive for REA.
The company stated that had the deal gone through, Rightmove shareholders would have owned approximately 18.6% of the merged entity. The cash portion of the bid was to be funded through debt and existing cash reserves.
Analysts estimate that REA would need to issue about 30 million new shares, potentially reducing News Corp’s stake in REA to around 50%.
Could REA Group go directly to Rightmove shareholders?
With Rightmove’s board rejecting the initial offer, REA Group may consider bypassing the board and taking the proposal directly to Rightmove’s shareholders.
This move could pressure the board to reconsider the offer, particularly if shareholders find the proposed 27% premium appealing.
Entcho Raykovski, an analyst at E&P, suggests that REA could also enhance its offer by increasing the cash component, although this might require a capital raising that could dilute existing shareholders’ stakes.
Impact on REA shares following Rightmove rejection
Following the announcement of the rejected bid, REA shares fell by 1.25% in early trading on Wednesday.
This decline reflects investor concerns about the company’s potential strategies to revive the deal, which could include issuing more shares or raising additional capital.
A potential secondary listing in London, which REA is considering to attract a broader investor base, could also have implications for the company’s valuation and shareholder structure.
REA Group could opt to revise its offer by increasing the cash element, as some analysts believe there is merit in the acquisition.
Any increased bid would need to maintain financial discipline to avoid compromising REA’s financial metrics. Raykovski said,
We see merit in the deal but wouldn’t want to see REA increase the price to a level where the financial metrics are no longer attractive.
A revised bid could spark renewed interest from Rightmove’s shareholders or lead to further negotiations between the two companies.
While Rightmove has rejected REA Group’s £5.6 billion offer, the Australian firm still has options. These include directly approaching shareholders or modifying the terms of the offer.
As REA considers its next steps, a potential secondary listing in London could provide additional leverage by broadening its investor base.
Any move to increase the bid would need to carefully balance the financial implications to remain attractive to both REA’s and Rightmove’s shareholders.
This article first appeared on Invezz.com
