2nd Sep 2024 12:01
(Alliance News) - Australia's REA Group Ltd may have to pay a "large premium" if it wants to buy "unique asset" Rightmove PLC, analysts said.
On Monday, REA confirmed it is considering making a cash and shares takeover offer for UK peer Rightmove, saying it was responding to "press speculation".
Both Sydney-listed REA and London-listed Rightmove provide online property buying websites.
REA said it has not yet "approached, nor had any discussions with, Rightmove regarding any potential offer".
However, the company said it sees a "transformational opportunity" in the combination of the two companies.
"The REA board believes the enlarged group would represent a highly attractive investment opportunity for both REA and Rightmove shareholders, combining robust growth with strong margins and significant cash generation, enabling continued capital appreciation and shareholder returns," REA said in a statement.
"REA therefore considers that a combination of the two businesses would provide a significant opportunity to unlock shareholder value."
Melbourne-based REA now has until September 30 to announce a firm intention to make an offer for Milton Keynes, England-based Rightmove or walk away. It said that there can be no certainty it will make an offer and that Rightmove need take no action at this time.
Panmure Liberum analyst Sean Kealy said REA's approach appears to have been leaked before much progress has been made.
Kealy said he has long argued that if you want to run the dominant property classifieds portal in the UK, the cheapest way to do it is to acquire Rightmove, rather than try to scale smaller rival OnTheMarket with marketing spend.
"Clearly, REA Group agree with me," he added.
On price, the Panmure Liberum said he'd be looking for a "large premium" at this level.
"We've seen lots of M&A in classifieds recently, with Cinven buying Spain's Idealista and EQT taking private Singapore's Property Guru - at about 37-times and 45-times [earnings before interest, tax, depreciation and amortisation] respectively."
Rightmove is "larger, and more mature" than those businesses, but trading at around 15x financial 2024 Ebitda, he pointed out.
AJ Bell's Russ Mould suggested Rightmove could attract other interest.
"Other companies are likely to be interested in Rightmove given its market-leading position. Cash-rich private equity firms would be the logical choice, breathing new life into Rightmove so it can fight off the threat posed by CoStar's UK entry (via its acquisition of OnTheMarket) and capture the expected rebound in the UK property market."
Back in December, CoStar Group Inc completed the acquisition of OnTheMarket PLC for GBP99 million.
CoStar said the combination would create a "genuine disruptor" to the established UK market leaders.
Mould said Rightmove is a "unique asset" on the UK stock market and shareholders are unlikely to accept the first bid that comes along.
"It is the dominant property portal in the UK and should command a premium takeout price," he continued.
Jessica Pok at Peel Hunt said Rightmove is "one of the cheapest publicly listed classified groups in Europe, thus the takeover interest does not come as a surprise to us."
She explained Rightmove's rating has been subdued for some time due to the negative sentiment on the UK housing market and concerns over competitive threats from CoStar.
Pok has a 'buy' rating on Rightmove. She thinks the shares look "attractive" given the stability of its core classifieds business and the growth opportunities in other revenue streams, such as mortgages, commercial real estate and rental.
Shares in Rightmove leapt 22% to 680.20 pence each in London on Monday for a GBP5.35 billion market cap. REA shares closed down 5.3% to AUD207.44 in Sydney on Monday, giving it a market capitalisation of AUD27.41 billion, about GBP14.00 billion.
By Jeremy Cutler, Alliance News reporter
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