Rightmove formally rejects £5.6bn takeover proposal from Rupert Murdoch-backed REA

This morning, Rightmove announced that it had formally rejected a £5.6bn takeover bid from Rupert Murdoch-owned property company REA group on 2 September.

The property portal confirmed it had received an “unsolicited, non-binding and highly conditional proposal” from REA at 698p, which represented a a premium of 26 per cent to Rightmove’s share price on 30 August.

The indicative offer was at 305p a share in cash and 0.0381 new REA shares.

The price was based on REA’s stock price as of 10 September.

The board said that REA’s offer was “wholly opportunistic and fundamentally undervalued Rightmove and its future prospects”.

Accordingly, it chose to reject the proposal unanimously.

Shares in Rightmove, jumped nearly 25 per cent last week after it emerged that the Australian property giant was considering a takeover bid for the FTSE company.

Last week, REA said in a statement that it could “apply its globally leading capabilities and expertise” to improve both companies, and that the takeover would “unlock value for both Rightmove and REA shareholders by creating a global and diversified digital property company”.

A tie-up between the two could significantly reshape the online property market across two continents, and create a global leader in real estate. If completed, it would mark the largest outbound transaction from Australia this year.

“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.

It also revealed plans for a dual listing in the UK, which would address concerns for UK-only funds unable to hold REA shares.

Could REA raise its bid?

Under UK takeover rules, REA has until 30 September to make a firm offer for Rightmove. Analysts believe there is room for a higher bid, given the language used in Rightmove’s rejection statement. 

“The property portal said it ‘carefully considered’ the proposal,” said Russ Mould, investment director at AJ Bell. “That phrase suggests it is simply ‘no at the current proposed price’ and that the situation might change if REA digs deeper,” he explained.

Mould and other analysts agree the 27 per cent premium was insufficient to clinch a deal. Peel Hunt analysts said the offer “would need to be substantially sweetened to get [it] over the line.”

REA’s interest is likely driven by Rightmove’s recent share price slump from its peak in December 2021. A higher offer “can’t be ruled out” and could spark interest from other suitors, including private equity firms, according to Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Earlier this week, Jefferies upgraded its rating for the British firm from ‘underperform’ to ‘hold’, citing a “meaningful likelihood” that REA will follow through with its bid.

Although there is “limited” strategic logic for REA to buy Rightmove, it said, the financial appeal is “compelling” as REA’s premium equity and debt-free balance sheet puts it in a prime position for a low-risk deal.

However, Panmure Liberum said a deal looks “unlikely to come” as REA would have to significantly improve its bid and its ability to pay “looks stretched”.

Rightmove also remains the UK market leader and the most profitable company on the London Stock Exchange’s FTSE 100 index. Shareholders know this and won’t let it go cheaply, said Mould.

“Now comes the interesting part where we see if REA is serious in its pursuit for Rightmove, or whether it was simply trying its luck at a bargain price,” he added.