(Bloomberg) -- Rightmove Plc rejected a third takeover proposal from REA Group Ltd., saying the bid that valued the UK property portal at £6.1 billion ($8.2 billion) continues to be unattractive. The Australian suitor said it was disappointed.
REA, which is part of media mogul Rupert Murdoch’s empire, earlier this week put in a sweetened proposal, valuing Rightmove at 770 pence a share — about 2.7% more than the previous bid and 39% higher than the stock’s Aug. 30 closing price before the disclosure of its first offer. It even pushed the London-based firm’s shareholders to agitate for talks to kick off after expressing frustration at Rightmove’s refusal to discuss a deal following its two previous proposals.
Rightmove’s board “concluded that the increased proposal continues to be unattractive and materially undervalues the company and its future prospects,” the UK company said in a statement on Wednesday. “Accordingly, the board unanimously rejected” the bid on Sept. 24, it added.
In a separate statement, Richmond, Victoria-based REA Group said it’s frustrated that it still had no substantive engagement with Rightmove. It said its latest offer “represents a highly compelling proposition for Rightmove’s shareholders at a significant premium to relevant trading metrics.”
The UK’s go-to website for property listings has maintained steady revenue growth in recent years and its future prospects are looking bright as the UK housing market is expected to pick up on declining interest rates and efforts by the new Labour government to increase housing supply through a slew of planning reforms. That strength explains the acquisition interest, with more high-single-digit sales gains likely in 2024-25, according to a Bloomberg Intelligence report.
REA is also among very few companies suited for a Rightmove acquisition. US real estate firm CoStar Group Inc. recently purchased rival property portal OnTheMarket Plc for about £100 million, while private equity investor Silver Lake Management already owns Zoopla Ltd., effectively ruling them both out of a deal.
An offer price of less than 800 pence is unlikely to be accepted by Rightmove, and REA may need to top it even if hostile, according to another BI report on Wednesday.
By keeping its doors closed to a deal, Rightmove has already managed to extract a quick succession of sweeteners from REA worth about £500 million. If that’s indeed a hard-bargaining tactic, the risk for Rightmove’s shareholders is that REA walks away and shares in the UK company slump.
Rightmove’s stock, which has rallied more than 20% since the start of September, declined 1% to 676 pence as of 11:49 a.m. Wednesday in London. REA’s shares have tumbled 12% since the first bid announcement.
“We assume that REA recognises that while it might have the appetite and acceptances from Rightmove shareholders to go hostile, the large equity component of its possible offer leaves it boxed in by pressure on the REA share price,” Jefferies said in a research note.
While Rightmove enjoys the largest market share in the UK property portal market, rival OnTheMarket recently launched an expansion drive after being acquired by CoStar. Giles Thorne, a Jefferies analyst, described CoStar’s investment in OnTheMarket as “a serious competitive threat.”
REA has already expanded into other markets including India and plans to have a secondary stock market listing in London if it buys Rightmove.
In its statement, REA again urged Rightmove shareholders to encourage their board to initiate “constructive discussions” toward a potential deal ahead of a deadline. Under the UK’s takeovers code, REA has until 5 p.m. on Sept. 30 to announce a firm intention on whether to make a bid.
“REA remains ready to engage immediately with the board of directors of Rightmove,” it said.
What Bloomberg Intelligence Says:
A fourth approach is possible, with the latest bid showing REA may not just be pursuing an opportunistic move, though we remain skeptical on the deal’s strategic merit.
A new offer would still likely include a majority equity component, meaning Rightmove shareholders have to carry some of the deal’s execution risk by trading their interests for a stake in the combined entity. This risk comes from REA’s footprint in Australia and India, where property markets differ from the UK. REA has also struggled with European M&A in the past. This, in our view, ups the premium required.
— Tom Ward, BI analyst
--With assistance from Zoe Ma and Laura Benitez.
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