Forget it, says Murdoch company – we’re off to India
REA Group has officially withdrawn its offer to acquire UK-based Rightmove plc following the rejection of its fourth non-binding proposal. This latest offer, based on the 27 September 2024 share price, was valued at £6.2 billion and included a combination of cash and shares, offering 775p per share plus a special dividend of 6p per share. Despite this, Rightmove’s board once again turned down the bid, citing concerns over valuation and strategic fit.
REA, which is 61% owned by Rupert Murdoch's News Corp, had been pursuing Rightmove with the aim of creating a global digital property powerhouse. The Australian property giant had sought to combine its dominance in Australia, where it owns realestate.com.au and Mortgage Choice, with Rightmove’s strong presence in the UK market. REA’s leadership believed that the merger would have provided significant value to Rightmove shareholders, especially in light of increased competition in the UK from rivals like CoStar and Zoopla.
Persistent Efforts by REA
This marked REA’s fourth attempt to purchase Rightmove, with its latest offer presenting a 45% premium over Rightmove’s 12- and 24-month weighted average share prices. REA had also restructured the deal to increase the cash component in an effort to make it more appealing to shareholders. Owen Wilson, CEO of REA, had emphasised the strategic benefits of combining their operations and expanding their mortgage services, particularly in the UK where Rightmove had already identified mortgage broking as a key growth area.
However, despite these efforts, Rightmove's board remained unmoved. The first substantial engagement between the two companies took place on 28 September 2024, followed by a second meeting the next day. REA expressed disappointment that no further meaningful dialogue occurred during these meetings. "We were disappointed with the limited engagement from Rightmove that impeded our ability to make a firm offer within the timetable available," said Wilson. “They had nothing to lose by engaging with us. We are always financially disciplined when we look at M&A and reinvestment in our business and will continue to focus on the many other opportunities ahead of us. Our recent investment in Athena Home Loans is a great example of this.”
Challenges Facing Rightmove
While Rightmove has maintained its dominant position in the UK’s property search market with an 86% share, its growth has slowed in recent years. Shareholders have raised concerns over the company’s stagnating stock price, which has struggled to gain upward momentum over the past two years. Rightmove’s ongoing share buyback program and revised strategy have not significantly improved its market performance, making REA’s bid an attractive proposition for some investors.
However, Rightmove's board and management were not convinced that the offer was sufficient. Industry experts had mixed reactions, with some suggesting that REA might still have room to increase its bid, while others believed that the company should walk away from the deal. Russ Mould of AJ Bell commented, “Given that four proposals have been rejected, one would have thought REA had got the message by now that Rightmove shareholders want a whole lot more money.”
REA’s Financial Strength and Future Plans
REA remains confident in its ability to create value for its shareholders through other avenues, such as its recent investment in Athena Home Loans. In its full-year financial results released in August 2024, REA reported a 23% increase in revenues and a 27% rise in EBITDA, reflecting its strong cash generation and solid performance in Australia and other markets. The company is now shifting its focus back to its core markets, including new growth opportunities in India, where REA sees significant potential.
“We have a clear strategy to expand in our core business and adjacent markets, and India represents an exceptional opportunity for growth,” said Wilson. He also reaffirmed the company’s commitment to financial discipline, highlighting its robust balance sheet and strong cash flow, which position it well for future acquisitions or reinvestments.
Rightmove's Future Outlook
With the rejection of REA’s latest offer, Rightmove’s board has demonstrated its confidence in the company’s standalone prospects, despite the challenges posed by growing competition. The heightened interest in the UK property platform may have reminded investors of Rightmove's enduring value, and some market watchers believe this could draw in fresh investment.
For now, REA has ruled out any further bids for Rightmove in line with Rule 2.8 of the UK’s Takeover Code, but under certain circumstances, such as a third-party offer or significant change in Rightmove's circumstances, the restrictions could be lifted. Whether Rightmove will continue to operate independently or become the target of future acquisition attempts remains to be seen.
