REA Group, the property listings company majority-owned by News Corp (NASDAQ: NWS), is considering buying Rightmove to create a global real estate company, the Australian firm said on Monday, sending the British housing portal’s shares soaring.
Shares in London-listed Rightmove surged as much as 27.6% to 7.09 pounds, giving it a market capitalization of 5.59 billion pounds ($7.35 billion).
REA said it was considering a possible cash and share offer for Rightmove. However, it said it had neither approached nor held talks with Rightmove.
Britain’s largest property portal Rightmove said it has not received any approach from REA about a possible offer.
Analysts at Investec in a note agreed with REA’s stand that the offer and the enlarged group present a highly attractive investment opportunity given an easing interest rate environment in the U.K. and recent new investment starting to pay off.
Shares of REA, in which the Murdoch family-controlled media firm News Corp owns a more than 61% interest, fell as much as 8% before closing 5.3% lower at A$207.4, one of the day’s biggest losers on the benchmark.
If the deal goes through, it will be the largest so far this year in which an Australian firm buys an overseas company, data from LSEG showed. It would also be among the largest deals for a UK-listed company this year.
REA now has until September 30 to make a formal offer for Rightmove or walk away under UK takeover rules.
“Despite the potential long-term benefits of a strategic acquisition, the takeover move suggests capital vulnerability and risks,” Junvum Kim, Saxo Asia Pacific senior sales trader at Saxo Markets, said in regard to the potential deal for REA.
“REA currently has free cash flow amounting to only one-tenth of the market cap needed to acquire Rightmove, necessitating additional financing through capital raising, which could potentially dilute the stock price.”
A deal would boost growth for REA, the largest player in Australia’s online property space which has already developed a foothold in Asian countries including India.
On the other hand, Rightmove has benefited from the strength of its lettings business amid a prolonged weakness in the home sales market.
Jefferies analysts point out that the UK housing market is thrice the size of the Australian market and Rightmove is a highly profitable business that generates large volumes of buyer and seller leads that would help reduce operational costs.
Rightmove will be hoping to gain on the home sales front as ease in interest rates is expected to revive homebuyer demand.
The British housing sector has witnessed some big deals and takeover attempts this year as homebuilders seek to build up their land holdings.
The London-based company’s core business also generates revenue through advertising and accounts for about 90% of overall revenue. The British company has been under pressure to retain its UK market share after U.S. real estate firm Costar (NASDAQ: CSGP) last year agreed to buy Rightmove’s smaller domestic rival Onthemarket.
Peel Hunt analysts said Rightmove’s trading price-to-earnings ratio made it one of the cheapest publicly listed classified groups in Europe.
Shares in German digital real estate platform Scout24 gained over 1%, while British cars marketplace Auto Trader Group rose over 3% to a record high.
($1 = 0.7613 pounds)
($1 = 1.4765 Australian dollars)
($1 = 0.7609 pounds)
(Source: ReutersReuters)
