The board of Rightmove says it will “carefully consider” the latest takeover offer from REA Group, the Australian property company majority-owned by Rupert Murdoch’s News Corp. One hopes Rightmove’s directors are merely being polite. This third bid, like the last two, deserves a flat rejection.
Such a response would be consistent with Rightmove’s admirably robust stance so far – the one that has caused REA’s chief executive, Owen Wilson, to grumble about how he is “genuinely disappointed” at the lack of the engagement from the UK boardroom. What Wilson misses is that a target company is not obliged to have a cosy chat if it thinks the offer terms are too mean.
In this case, the Rightmove chair, Andrew Fisher, has already branded REA’s approaches at 705p and 749p “uncertain, highly opportunistic and unattractive”. So Monday’s bump to 761p or £6.1bn – an improvement of only 1.6% on the second offer – should not prompt a fundamental rethink. In the coded language of takeover scraps, the difference between “unattractive” and “attractive” implies more than a tiny percentage.
REA might protest that its third offer was worth slightly more – 770p – at the moment it was made, but therein lies its challenge as a bidder. Only 341p of the offer is in cash. The rest is in REA shares that, since this expedition started, have proved to be a less-than-solid acquisition currency on the Sydney stock exchange. The decline so far is 10%, presumably because REA’s non-News Corp investors fear their company will end up overpaying for a business on the other side of the world.
Viewed through a UK prism, however, Rightmove fully deserves a rich premium if its shareholders are to be persuaded to sell. Yes, the share price has gone roughly sideways for two years, as the bidder has identified, but this is hardly a case of dry rot in the timbers. Rightmove’s market share in the online marketing of residential property is still about 85%, its profit margins are still a remarkable 70% and it generates enough cash to run a share buyback programme on top of its dividend.
Nor has Rightmove run out of room to grow. It has started to expand into mortgage-broking and commercial property. Analysts at Bernstein observe that the company’s plan targets an effective improvement in operating profit of 55% between 2024 and 2028. Since the operational synergies between Australian and UK property portals are approximately zero, a combination of the two wouldn’t obviously accelerate the pace.
For a flavour of the other analysts’ views on Monday, try Peel Hunt: “We believe the offer is still not at a level that Rightmove investors will consider”. Or Panmure Liberum in a similar vein: “We don’t see this offer as providing much in the way of incentive for long-term investors to sell.” In other words, Fisher and the Rightmove board would not be going against the grain of City opinion in telling REA to come back with a proper price – if it can – or hop off. A 37% takeover premium to the pre-approach share price is not enough.
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The formal “put up or shut up” deadline is still a week away and REA did not use the word “final” to describe its latest offer. So there is time for more action. For the time being, though, Rightmove’s board should continue to say no. Its standalone strategy is fine.