Mortgage Choice owner battles for UK foothold

Although Rupert Murdoch may want to “tell ‘em they’re dreamin’ ”, a major UK acquisition doesn’t seem to want to be acquired – so he’s offering them even more.

Rightmove, the UK’s largest online property portal, has found itself at the centre of a high-stakes acquisition battle as Rupert Murdoch-controlled REA Group, Australia’s dominant property platform, seeks to make a transformative move into the UK market.

A bid at the weekend, which valued Rightmove at approximately £5.9 billion (A$11.55 billion), was not REA’s first attempt. Just weeks earlier, Rightmove had unanimously rejected a lower offer of £7.05 per share, deeming it “wholly opportunistic” and arguing that it fundamentally undervalued the company.

However, REA was undeterred and came back with an improved offer of £7.50 per share late last week. While sweetened the pot by around £300 million, Rightmove’s board once again rebuffed the proposal, citing its confidence in Rightmove’s long-term prospects, especially as the UK property market begins to rebound from its recent downturn.

The takeover battle has sent Rightmove’s shares surging, now trading around £6.75, a significant increase from £5.55 before news of REA’s interest became public.

And in breaking news, the Australian company has sweetened the deal yet again to 341pence in cash and 0.0422 new REA shares – worth, it claims £7.70 per share, valuing the company at £6.1 billion. The new deal would offer a premium of 39% over August’s 556p per share, and would mean that Rightmove stockholders would own around 20% of the new combined company.

A transformative opportunity or a defensive play?

REA Group, in which Murdoch’s News Corp holds a 61% stake, is eyeing Rightmove as a “transformational opportunity” that would significantly expand its global footprint.

With a market value of $26bn (£13.4bn), REA dominates the Australian property scene and has a growing presence in financial services, notably through its ownership of Mortgage Choice, one of Australia’s largest mortgage broker franchise networks.

The acquisition of Rightmove would not only give REA a significant foothold in the UK’s online property market but also create a new pathway into mortgage services.

Rightmove’s CEO, Johan Svanstrom, has already identified mortgage services as a critical growth area for the UK platform. By integrating REA’s Mortgage Choice expertise, Rightmove could potentially turbocharge this sector, offering a more comprehensive home-buying experience for its users.

On the other hand, some analysts believe REA’s bid could also be seen as a defensive play. With the UK property market attracting increasing international interest, including from U.S. property data giant CoStar, which recently acquired British platform OnTheMarket for £99 million, REA’s move may be an attempt to ward off future competitors.

CoStar’s aggressive entry into the UK market initially sent Rightmove’s stock tumbling 14%, underscoring the growing competition within the sector.

Competing visions and investor reactions

The proposed acquisition has not only captivated the real estate sector but also drawn sharp reactions from investors. While Rightmove’s shareholders have seen a 25% rise in their stock value since REA’s first approach, REA’s investors have been less enthusiastic. News of the bid led to a 7% drop in REA’s share price, with concerns about the potential equity raising needed to fund the deal.

Despite this, REA’s CEO Owen Wilson, praised for his "sensible" and strategic leadership, remains confident. Speaking to the Financial Times, stockbroker Angus Aitken described the potential deal as a "common sense" acquisition aimed at long-term returns rather than short-term gains.

Wilson’s steady hand since taking over as CEO in 2018 has helped REA weather international challenges, and many believe his leadership could guide the successful integration of Rightmove into REA’s portfolio.

However, there’s no guarantee the acquisition will go through. Under UK takeover rules, REA Group has until the end of September to either make a formal offer or back away. If the deal proceeds, REA has already promised to list the combined company on the London Stock Exchange, allowing Rightmove’s shareholders to hold a stake in what would be a global real estate powerhouse.

Rightmove’s shareholders would own approximately 18.6% of the enlarged entity, a significant portion of what could become one of the largest digital property companies in the world. 

A shifting landscape in online real estate

The UK property market has seen a surge in merger and acquisition activity in recent years, with large players jostling for dominance. CoStar’s purchase of OnTheMarket and the 2018 acquisition of Zoopla by U.S. private equity firm Silver Lake for £2.2 billion are just some examples of how international interest is reshaping the market.

Should REA successfully acquire Rightmove, it could solidify its position as a global leader in digital property services.

Rightmove, a part of the FTSE 100 index, has already weathered a challenging year, with the company warning of a potential slight decline in its customer base due to the market downturn affecting estate agents and housebuilders. However, the company also posted a 7% revenue growth in the first half of 2024, driven by increased spending on property listings.

Svanstrom’s focus on expanding into mortgage services, rental properties, and commercial real estate could make Rightmove a much more diversified platform, increasing its appeal to both customers and investors.

What’s next?

As the deadline for a formal offer approaches, the industry is waiting with bated breath. If REA succeeds in its takeover, it could mark the beginning of a new chapter for both companies, reshaping the real estate and mortgage markets in the UK.

With REA’s expertise in mortgage broking and Rightmove’s dominance in property listings, the combined company would have a unique opportunity to streamline the property buying process, from listing to financing. 

For now, all eyes are on REA Group’s next move as the UK’s property market braces for potential transformation