Real Estate Associate Rupert Murdoch's proposed acquisition of Rightmove denied for the third time
In the realm of UK online property, a captivating saga unfolds as REA Group, majority-owned by News Corp, has once again made a play for Rightmove, the UK's leading online property firm valued at £6.1bn. The latest bid, offering 705p a share, was unanimously rejected by Rightmove's bosses on Wednesday.
This is not the first time REA has attempted to acquire Rightmove. Earlier this month, REA proposed a £5.6bn takeover, which was also rejected. The current offer comes under City Takeover Panel rules, which give REA until 5pm on September 30 to make a firm offer or withdraw.
The UK property market has been lacklustre, and Rightmove faces a new competitive threat from US property giant CoStar, which bought UK property website OnTheMarket last year. The potential acquisition by REA would significantly expand the Australian-based company's footprint, creating a larger, more diversified property listings platform.
If successful, the merger could generate operational efficiencies, enhance data capabilities, increase user base and advertising revenue, and strengthen pricing power, potentially boosting investor returns over time. However, such a large acquisition might strain REA’s balance sheet or lead to overextension risks, impacting investor confidence and share price volatility.
REA's latest bid comes at a time when the property market is showing signs of recovery. The latest data suggests buyers are starting to return to the market, and mortgage rates have been coming down for the past few months, falling further since the Bank of England's first interest rate cut on 1 August. An uptick in property market activity would spell good news for Rightmove, as it makes money from estate agents advertising properties on its sites.
The potential deal, however, is not without its challenges. With no acquisition, REA has indicated a higher dividend payout ratio, favoring shareholders in the near term. A takeover might reduce this dividend availability if capital is redirected to the acquisition and integration costs. Furthermore, integrating Rightmove’s business could expose REA to UK market risks and regulatory scrutiny, which investors must consider.
REA's disappointment with Rightmove's rejection of its latest bid is palpable. The investment director at AJ Bell, Russ Mould, states that REA moving on Rightmove would amount to a highly opportunistic bid. Rightmove, a constituent of the FTSE 100 index, has rejected all three takeover bids, stating that they undervalue the company.
The article was written by fund manager Nick Train earlier this summer, long before the latest bid was made. The potential implications of a takeover of Rightmove by REA Group for investors include both strategic opportunities and risks, which investors must carefully weigh.
[1] Expansion and Market Position [2] Dividend Considerations [3] Synergies and Scale [4] Market and Regulatory Risks [5] Valuation and Price Risk
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