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Rightmove, Britain’s largest property listings company, has rejected an initial cash and shares bid from Australia’s REA Group that valued the UK business at about £5.6bn.
REA, which is controlled by Rupert Murdoch’s News Corp, said its initial proposal valued Rightmove’s shares at 705 pence, a 27 per cent premium to the UK company’s share price prior to the Australian company’s interest being made public.
Rightmove said it had on Tuesday rejected the “highly conditional proposal” from REA, which it said was “wholly opportunistic and fundamentally undervalued Rightmove and its future prospects”.
REA, which is working with Deutsche Bank, said last week it was considering a bid for Rightmove but had yet to approach the UK company. The indicative offer, made public on Tuesday, comprised 305p a share in cash and the rest in REA stock which, at the time of the offer, traded at A$205.51 (US$136.84).
REA said Rightmove shareholders would own 18.6 per cent of the combined company based on its indicative offer and that it intended to seek a secondary listing on the London Stock Exchange to allow UK investors to trade the shares.
“The proposal combines certainty of value, in cash, at a significant premium to recent trading while at the same time giving Rightmove shareholders the opportunity to benefit from the future value creation of the combined business,” REA said in a statement.
Rightmove said the offer would amount to 698p a share as of Tuesday’s share price because REA’s stock had fallen since it made the offer.
Under UK takeover laws, REA has until the end of September to make a formal offer or walk away.
Rightmove’s shares ended Tuesday at about 671p in London trading. The shares have risen by about a fifth since news of the potential takeover broke. The FTSE 100 group has a market capitalisation of about £5.2bn. REA shares dropped 2.2 per cent to A$197.99 on Wednesday.
REA said in its statement last week that it could “apply its globally leading capabilities and expertise” to improve both companies as a diversified group. Analysts have said synergies show little scope given that the two companies operate in different geographies.
Siraj Ahmed, an analyst with Citi, said in a research note this week that a premium of 40-50 per cent to the Rightmove price may be required to strike a deal.
Entcho Raykovski, an analyst with E&P, said REA could look to sweeten the cash component of the offer, but it was unlikely to raise the share component as this would potentially dilute News Corp’s holding in the Australian company below 50 per cent.
The UK platform has an 80 per cent market share in online property listings but has warned of slowing customer growth. Rival OnTheMarket was acquired last year by US real estate data group CoStar and has since launched an expansion push.
Rightmove’s chief Johan Svanstrom has looked for growth in areas beyond its core property listings business, including mortgage services and commercial property.
The activist investor Starboard Value put pressure on News Corp last year to separate its property businesses — including the group’s controlling stake in REA — from the media business.
Starboard has since submitted a non-binding proposal that would end Murdoch family control of News Corp, according to a letter sent to the company’s shareholders.
The details of the REA offer were first reported by Bloomberg.
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