REA Group Ltd., a key player in Rupert Murdoch’s media empire, is considering a $5.8 billion takeover bid for Rightmove Plc, a leading UK property portal, to establish a global digital real estate company. The Australian property listing provider, controlled by News Corp., announced on Monday that it is contemplating a possible cash and share offer for Rightmove but has not yet approached the company or engaged in any discussions about the bid.
REA’s shares fell by as much as 8% in Sydney, marking the largest intraday decline since December 2022. This drop reflects investor concerns that the company might have to issue additional stock to finance the acquisition. Rightmove’s shares have also seen a 3.5% decline in London trading this year, with a market valuation of £4.38 billion ($5.8 billion).
A potential acquisition would significantly expand REA’s scale, complementing its status as the largest player in the Australian online real estate market and its expansion into other regions, such as India. Rightmove has shown steady revenue growth in recent years, and the UK housing market is anticipated to recover as interest rates decrease.
The revelation of REA’s interest, prompted by media speculation, requires the company to make a definitive decision. According to the UK’s takeover regulations, REA must declare a formal intention to bid by 5 p.m. London time on September 30.
“A combination of the two businesses would provide a significant opportunity to unlock shareholder value,” REA stated.
Following any acquisition, REA plans to invest in and innovate within Rightmove. The combined entity is expected to deliver “robust growth with strong margins and significant cash generation, enabling continued capital appreciation and shareholder returns,” according to the company, based in Richmond, Victoria.
The prospective deal underscores the importance of scale in the digital property-brokering business. REA has a market value of A$27 billion ($18 billion) and trades at nearly double the valuation of its local competitor, Domain Holdings Australia Ltd., primarily due to its larger user base and international growth.
However, investors are cautious due to the mixed track record of Australian companies achieving substantial returns from large-scale overseas mergers and acquisitions. Additionally, REA would need to raise at least A$6.1 billion in equity, or about 23% of its current market capitalization, to make the deal profitable, according to Bloomberg Intelligence analysts Jack Baxter and Andrew Torchia.
“Its top valuation supports an equity raise, but there would be execution risk in the deal versus shareholder distributions,” Baxter and Torchia noted in a Monday report.