By Sam Buckingham-Jones
News Corp’s real estate platform increased its offer to almost $12 billion, but it was swiftly rejected by the board of the UK’s biggest property portal.
Rightmove shareholders say News Corporation-backed REA Group must make a higher offer if it wants to buy Britain’s largest property portal despite a $12 billion bid that could water down the Murdoch family media empire’s stake to less than 50 per cent.
REA, which owns realestate.com.au, disclosed on Monday that it had made a third bid for Rightmove – offering £6.1 billion ($11.9 billion), or £7.70 a share – while criticising the London-listed company and its board for a “lack of engagement”.
But two large local Rightmove shareholders, GCQ Funds Management and Fairlight Asset Management, said that the new, higher takeover bid still undervalued the real estate firm, although they believed REA was nearing a price worth discussing.
REA, which is 61 per cent owned by News Corp, announced its intentions to make a bid for Rightmove earlier this month. Two bids, including one at £7.49 a share made at the weekend, have already been rejected by the British group.
On Monday evening, Rightmove said it would “carefully consider” the latest approach.
“Rightmove is an exceptional company with a very clear strategy, a consistent track record of delivery and a strong management team,” said Rightmove chairman Andrew Fisher. “The board is confident in the company’s short and long-term prospects, and sees a long runway for continued shareholder value creation.”
But some REA shareholders are worried that the company could pay too much. Wilson Asset Management’s John Ayoub, who manages a stake in REA, said the offer was approaching a price where it would no longer make sense.
“History tells you with premiums that 30 per cent is the lower end, 50 per cent the higher end. To have 41 per cent with cross-border complexities, 770-775 is probably about right,” he said. “Why did it take REA’s interest to catalyse Rightmove’s price? It makes sense for REA to have this asset, but you don’t need to pay silly amounts.”
On Sunday, it offered £3.41 in cash and 0.0422 new REA shares, an increase of 9.2 per cent on its initial bid. It is a 41 per cent premium to Rightmove’s six-month average price and 43 per cent premium to its two-year average. The cash component would be partly funded by debt, and Rightmove shareholders would own 20 per cent of the group.
‘Opportunistic’ approach
REA chief executive Owen Wilson said the new offer gave Rightmove shareholders “an increasing opportunity in core digital property and adjacencies where we have much expertise”. REA, he said, was “genuinely disappointed at the lack of engagement by Rightmove’s board, and we strongly encourage the Rightmove board to engage”.
Apart from the two rejections, REA said it had “no substantive engagement” with Rightmove. Rightmove has described the approach so far as “wholly opportunistic”.
E&P Capital’s Entcho Raykovski told clients this offer was aimed at bringing Rightmove’s board to the negotiating table. “We note that REA has not declared the offer best and final, so there is scope for further increases,” he said. JPMorgan’s Don Carducci added that the “swift revised bid from REA indicates their intent to complete the deal”.
On Monday, REA released a seven-slide presentation pointing out Rightmove had underperformed the FTSE100 and its share price had “lacked any sustained upward momentum for two years” despite a share buyback and explanations of its strategy. The Australian property giant, which is worth $26 billion, had grown 76 per cent over the past two years, far exceeding the ASX 200.
Analysts said REA’s proposal could be a defensive move to ward off a future international competitor. US property data giant CoStar bought the UK’s third-placed residential listings platform, On The Market, for £99 million in December, which initially sent Rightmove’s share price tumbling 14 per cent.
Still, GCQ and other big Rightmove shareholders are backing the company’s management and their rejections of REA’s approach – so far.
“I commend the Rightmove board for rejecting the initial lowball offers,” said GCQ chief investment officer Doug Tynan. “However, the revised £7.70 proposal demonstrates the seriousness of REA’s intent and as a consequence, we are at the point where it is in shareholders’ interests for the board to engage with REA.”
Fairlight portfolio manager Alvise Peggion said the third offer was “a step forward” but would be a hard sell for Rightmove shareholders.
“The structure of the deal though, where REA is still offering to pay mostly through scrip, leaves us unexcited,” he said. “Property portals are terrific businesses. While CoStar efforts to gain significant share in the UK market are not to be taken lightly, history shows that it’s extremely hard to displace the dominant player.
“Unless REA’s offer becomes heavily skewed towards the cash component or increased further to compensate for the extra complexity around accepting scrip, this last offer is also likely to fall flat with major Rightmove shareholders,” he added.
Regal Partners owns shares in both REA and Rightmove. It’s chief investment officer, Phil King, said Rightmove should accept the bid at the current price. “In our view [Rightmove] don’t appreciate the upside to the REA share price if the deal is successful and the downside to the Rightmove share price if the offer is withdrawn,” he said.
Angus Aitken, a stockbroker close to News Corp, told clients on Monday that the board of Rightmove had been treating REA “like convicts in the First Fleet”.
Rightmove is being advised by UBS and Morgan Stanley, while REA is working with Deutsche Bank.
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