REA Group Considers Acquiring Rightmove

By Rishav Chatterjee and Aaditya GovindRao
(Reuters) – REA Group, a property listings company largely owned by News Corp, is contemplating acquiring Rightmove to establish a global real estate entity, leading to a substantial rise in Rightmove’s stock prices.

Shares of London-listed Rightmove soared by as much as 27.6% to 7.09 pounds, achieving a market capitalization of 5.59 billion pounds (approximately $7.35 billion).

REA is mulling over a potential cash and share proposal for Rightmove but has clarified that no discussions or formal approaches have been made yet.

Rightmove, the UK’s largest property portal, confirmed that it has not received any proposal from REA regarding the acquisition.

Investec analysts noted that an acquisition and the creation of a larger corporation present a compelling investment opportunity, especially in light of a declining interest rate environment in the UK and the emergence of recent profitable investments.

Meanwhile, shares of REA, where News Corp has a stake of over 61%, declined up to 8% before ultimately closing at A$207.4, marking it as one of the day’s significant losers.

Should the acquisition materialize, it would represent the most significant acquisition this year involving an Australian company purchasing a foreign entity, as per LSEG data. This would also stand among the largest deals concerning a UK-listed company in 2023.

REA has until September 30 to submit a formal bid for Rightmove or abandon the move in compliance with UK takeover regulations.

Junvum Kim, senior sales trader at Saxo Markets, expressed concerns about REA’s capital vulnerability and the risks involved in such strategic acquisitions, indicating that REA’s free cash flow is just one-tenth of the market cap needed to acquire Rightmove, thus warranting further financing that could risk stock dilution.

Acquiring Rightmove could accelerate REA’s growth, which is already a dominant player in Australia’s online property sector and is expanding in Asian markets like India.

Rightmove, benefiting from its lettings operations amidst a sluggish home sales market, stands to gain from a recovery in homebuyer demand as interest rates soften.

The UK housing sector has seen significant transactions and merger attempts this year, with homebuilders eager to enhance land holdings.

Rightmove’s core revenue, derived mainly from advertising, constitutes about 90% of its total earnings, with the firm under pressure to maintain its UK market positioning following the previous year’s acquisition of a smaller competitor by Costar, a US real estate firm.

Peel Hunt analysts highlighted that Rightmove’s price-to-earnings ratio renders it one of the most affordable publicly traded classified companies in Europe.

Shares in German digital real estate platform Scout24 rose over 1%, while British vehicles marketplace Auto Trader Group climbed over 3% to reach a record high.

($1 = 0.7613 pounds)
($1 = 1.4765 Australian dollars)
($1 = 0.7609 pounds)