Rightmove to consider sweetened offer from Australian group

Rightmove is considering a third £6.1 billion takeover offer from a Melbourne-based property company after rejecting two previous proposals.
Rea Group’s latest indicative offer — 341p in cash and 0.0422 new Rea shares — values the UK property website at 770p a share, a 39 per cent premium on Rightmove’s share price before the first offer was tabled.
Andrew Fisher, Rightmove chairman, said: “The board will carefully consider the increased proposal, together with its financial advisers.”
Shares in Rightmove closed up 5¼p, or 0.8 per cent, at 679½p.
Rea said it was ready to engage immediately with the Rightmove board. There is thought to be frustration on Rea’s part at the lack of engagement from Rightmove following the offers, which it believes are compelling.
Owen Wilson, the Rea chief executive, said “We are genuinely disappointed at the lack of engagement by Rightmove’s board. We live in a world of intensifying competition and this proposed transaction would bring together two highly complementary digital property businesses for investment and growth.”
He said the improved offer gave “a combination of immediate value certainty in cash” plus the chance to participate in Rea’s growth.
Rightmove had rejected the two previous offers as “opportunistic” and “fundamentally undervaluing” the company and its prospects.
Rightmove has an 86 per cent share of the house search market in the UK. It has high margins: for every £1 spent by estate agents and developers with Rightmove, it made 69p of profit in the first half. About 19,000 estate agents and developers advertise on the portal.
Its shares have underperformed the market over the past year amid fears that it could face increased competition from OnTheMarket, a rival that was acquired by CoStar, the American property group, for £99 million towards the end of last year.
Rea is 61 per cent owned by News Corp, the publisher of The Times. It was founded in 1995 and has a market capitalisation of A$26 billion (£13 billion). It intends to apply for a secondary listing of all of its ordinary shares in London, which would enable trading in its shares on both the London Stock Exchange and the Australian Securities Exchange.
The company is Australia’s dominant property platform. It believes the commercial rationale for its offer is supported by its diversification into “adjacent’ areas such as mortgages.
It owns Mortgage Choice, one of Australia’s largest mortgage brokers. It is thought that an acquisition of Rightmove could provide a route for the Australian business to move into the UK mortgage service market. Rightmove has already identified this as a potential area for expansion.
In an analysts’ note, Jefferies, the investment bank, said Rea’s “tone has changed, becoming more firm. In our view, this latest approach may be the beginning of the end-game. We see a rejection by Rightmove of this latest offer as increasing the risk that Rea could elect to forgo a recommended offer” and that Rea “could go hostile”, pursuing a takeover without the consent of the target company’s management.
Rea highlighted the lack of any “sustained upward momentum for two years” in Rightmove’s market value “despite being supported by its ongoing share buyback programme and revised strategy announced at last year’s capital markets day”.
Shares in Rea fell A$5, or 2.5 per cent, to A$194 on the Australian stock exchange.
In Monday morning’s statement, Fisher said: “Rightmove is an exceptional company with a very clear strategy, a consistent track record of delivery and a strong management team. The board is confident in the company’s short and long term prospects, and sees a long runway for continued shareholder value creation.
“The board will continue to act on behalf of our shareholders and respond to the most recent proposal in due course.”
Under the City’s takeover code, Rea has until 5pm on September 30 to make a firm offer or walk away.