Rightmove Unanimously Rejects £5.6bn Takeover Bid from Australia's REA Group

Rightmove has rejected a £5.6bn cash-and-stock takeover proposal from Australia’s REA Group

REA Group, 62% owned by Rupert Murchoch's News Corp, had offered 705 pence per Rightmove share, representing a premium of 27% to the British company’s closing price of 556 pence on 30 August.

But the UK market leader unanimously rebuked the offer, saying "The board concluded that it was wholly opportunistic and fundamentally undervalued Rightmove and its future prospects."

After news broke last week that REA was 'considering' a bid, REA made its offer on the 5th of September, with Rightmove rejecting the bid yesterday.

REA Group's statement read:

Further to recent press speculation in relation to REA’s possible offer for Rightmove plc (“Rightmove”), REA confirms that on 5 September 2024 it made a non-binding indicative proposal to the Board of Directors of Rightmove regarding a possible cash and share offer for the entire issued and to be issued share capital of Rightmove (the “Proposal”). REA was informed on 10 September 2024 that the Rightmove Board rejected the Proposal.

Under the terms of the Proposal, ordinary shareholders of Rightmove would receive for each Rightmove share:

305 pence in cash and 0.0381 new REA shares

Based on the closing share price of REA’s shares of A$205.51 and the A$/£ exchange rate of 1.956 on 5 September 2024, being the date the Proposal was made to the Board of Directors of Rightmove, the Proposal implies a total offer value of 705 pence for each Rightmove share and values Rightmove’s entire issued and to be issued ordinary share capital at approximately £5.6 billion.

The terms of the Proposal represent:

• a 27 per cent. premium to Rightmove’s undisturbed share price of 556 pence on 30 August 2024 (being the last business day prior to the date of REA’s possible offer announcement on 2 September 2024); 
• a 29 per cent. premium to the Rightmove’s 6-month volume weighted average share price of 548 pence;
• a 31 per cent. premium to the Rightmove’s 12-month volume weighted average share price of 540 pence; and
• an enterprise value multiple of approximately 20.5x Rightmove’s EBITDA for the twelve months ended 30 June 2024 of £272 million.

Under the terms of the Proposal, Rightmove shareholders would hold approximately 18.6 per cent. of the combined group’s issued share capital following completion of the proposed transaction. The cash component of the Proposal is expected to be funded through third party debt and existing cash resources. Given the strong growth and high cash generation of both REA and Rightmove, REA expects the enlarged group will be able to rapidly delever, consistent with REA’s track record.

REA intends to apply for a secondary listing of all of its ordinary shares in London, which would enable trading in REA ordinary shares on both the London Stock Exchange and the Australian Securities Exchange in a fully fungible manner. This would provide the opportunity for a wider pool of investors to gain exposure to a global and diversified digital property company on the London Stock Exchange.

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 believes the Proposal represents a highly compelling proposition to:

• unlock value for both Rightmove and REA shareholders by creating a global and diversified digital property company, with strong margins and significant cash generation, underpinned by number one positions in Australia and the UK;
• enhance customer and consumer value across the combined portfolio utilising REA’s globally leading capabilities and expertise;
• apply REA’s experience in investing in and growing adjacencies to support Rightmove in its ambition to accelerate expansion in these areas, while minimising execution risk;
• benefit from knowledge transfer, leading technical capabilities as well as support from targeted investment and innovation in a competitive market; and
• enhance the UK property experience for buyers, sellers, and renters, positively contributing to the property market ecosystem.

Under the terms of the Proposal, Rightmove shareholders would remain entitled to receive the 2024 interim dividend of 3.7 pence per share, as announced by Rightmove on 26 July 2024, without any reduction to the terms of the Proposal.

The Proposal is non-binding and subject to customary conditions, including completion of due diligence to the satisfaction of REA. REA reserves the right to waive in whole or in part any of the conditions to the Proposal.

There can be no certainty that an offer to Rightmove shareholders will be made by REA or that any transaction will proceed. REA shareholders do not need to take any action at this time.

In a statement to the markets, Rightmove said:

The Board of Rightmove plc notes the announcement from REA Group Ltd (“REA”) and confirms that it received an unsolicited, non-binding and highly conditional proposal from REA regarding a possible cash and shares offer to acquire the entire issued and to be issued ordinary share capital of Rightmove (the “Proposal”).

The Proposal was 305 pence in cash and 0.0381 new REA shares for each Rightmove ordinary share. Based on the closing price of REA on 10 September 2024¹, this implies an offer value of 698p and a premium of 26% to the undisturbed closing share price of Rightmove as of 30 August 2024 (being the last business day prior to the date of REA’s possible offer announcement on 2 September 2024).

The Board carefully considered the Proposal, together with its financial advisers, and concluded that it was wholly opportunistic and fundamentally undervalued Rightmove and its future prospects. Accordingly, the Board unanimously rejected the Proposal on 10 September 2024.

Rightmove shareholders should take no action in respect of the Proposal.

This announcement is being made without the agreement or approval of REA. There can be no certainty that any offer will be made nor as to the terms on which any offer may be made.

Chris Watkin, a well-known real estate professional in the UK, commented on Property Industry Eye, the British publication for all things real estate, commented:

"While Rightmove’s board has just turned down a £5.6bn bid from Australia’s REA Group, stating that the offer fundamentally undervalued the company’s future potential, could this rejection play into REA’s hands for a more aggressive move?

"Could REA’s initial bid may have been a strategic step, knowing it would be rejected, to pave the way for a potential hostile takeover. With Rightmove shareholders now in the spotlight, REA could return with a direct offer to them – bypassing the board altogether?

"Hostile takeovers mean they dont have to pay the premium that friendly takeovers have to pay. Either way, estate Agents need to be aware.

"This approach could allow REA to snap up Rightmove without the premium typically required in friendly negotiations."

But Simon Baker, founder at Online Marketplaces, disagrees. He said:

"REA’s Australia’s shareholders don’t like this deal either. The share price was down 2% today and is down nearly 10% over the last 10 days since the potential deal was confirmed by the REA Board. This has cost the REA Group nearly AUD 3 billion off its market cap (GBP 1.5 billion). Why has this occurred? The loss of dividends to the REA shareholders. Given the high amount of cash needed for the deal, the shareholders are expecting to lose their dividends.

"So what does this mean for the deal? When the REA Group spoke to the Rightmove Board, the deal was valued at 705 pence per share. It is now valued at 696 pence (as the REA Group share price has dropped) - a 25% premium to the 30 August share price.

"The market is expecting a higher take over premium - say 35-40% to get the deal done. Given the relatively low take over premium being offered, the Rightmove Board had no other option. In addition, at this level of premium, other bidders are likely to enter the process."