REA Group Poised for Bold $9B Rightmove Takeover, Transforming Global Real Estate.

About REA Group Limited

REA Group Limited (REA or the Group) is a multinational digital advertising business specialising in property that is 61 percent owned by News Corp Australia, a subsidiary of News Corp. It operates Australia’s leading residential and commercial property websites, with its flagship site, realestate.com.au, being Australia’s number one property site. The Group also operates the data and insights business, PropTrack, and a leading mortgage broking business, Mortgage Choice. Internationally, REA holds a controlling interest in REA India and a 20 percent stake in Move Inc., operator of realtor.com in the US. It also has a stake in PropertyGuru Group, South-East Asia’s leading PropTech company which operates in Singapore, Malaysia, Thailand, Indonesia and Vietnam.

Media takeover speculation

REA Group has been forced to respond to media speculation that it intends to buy the United Kingdom’s largest property portal, Rightmove Plc, for more than $9 billion. REA has confirmed that it is considering a possible cash and share offer for 100 percent of the issued capital of Rightmove Plc.  However, it has not had any discussions with Rightmove regarding any potential offer and has only announced its interest in acquiring Rightmove because it is required to do so under UK and Australian takeover rules.

The REA Board consider that the market leading core residential business of both Groups are highly complementary, and the dominant audience share, and strong brand awareness of each entity provides for a leading global diversified digital property business.

About Rightmove Plc

Rightmove was founded in 2000 by four corporate estate agencies and floated on the London Stock Exchange in 2006. Today it has a market capitalisation of £4.4b, equivalent to $8.5 billion. The market capitalisation of REA is $29 billion.

Rightmove, like REA Group, is a high-quality franchise with strong pricing power because the comprehensive, real-time property information available on its platform is indispensable for its real estate customers. It has the largest data-set of the UK property market and its market share is estimated at 86 percent as its lead conversion is multiples higher than its competitors.

Rightmove has an asset-light and capital efficient business model with virtually no long-term debt that delivers an extraordinarily high operating margin of close to 70 percent. Revenue has consistently grown at close to 10 percent per annum over the past decade.

What’s next?

REA has until the end of September to formally make an offer or walk away under UK takeover laws now that it has publicly expressed its interest in Rightmove.

The timing of any potential takeover offer by REA appears opportune because REA’s share price has increased by 30 per cent in the past year, on the back of a strong Australian housing market which has boosted profit growth.  Shares in Rightmove prior to REA’s announcement have jumped by about 25 percent but remain about 15 percent below their December 2022 high before the British housing market softened in response to rising interest rates. The prospect of lower UK interest rates is positive for the UK property market in the period ahead and a more active property market would be advantageous to Rightmove. This implies REA’s interest in Rightmove is well timed as it seeks to use its higher priced equity as currency should it make a formal takeover offer for Rightmove.

Shares in REA dropped 6 per cent after it revealed the potential UK expansion. This is a common occurrence in circumstances that may involve the bidder entity raising fresh equity to complete a takeover bid.  The share price drop was most likely driven by hedge fund short selling of REA shares at a higher price now than what they can re-purchase the new shares at under any equity issue that may be undertaken by REA to provide purchase consideration in the form of discounted equity to Rightmove shareholders. This means that if a takeover offer does eventuate, the REA share price should soon revert to at least its price before yesterday’s announcement of a possible takeover bid.

What should REA shareholders do?

For now, REA shareholders should sit tight and see if a formal takeover bid is announced. If REA don’t bid for Rightmove then the likelihood is that the REA share price will revert to its previous level.

If REA do proceed with a takeover offer and if it occurs, REA will become a globally significant online real estate business across both the UK, Australian and Indian property markets. REA, as already one of Australia’s largest listed companies, would see index buying and value investors buying shares given the lower risk premium attached to the more diversified and higher index-weighted REA Group.

The other potential share price catalyst for REA is that its 61 percent controlling shareholder in News Corp may separate a larger and transformed REA from the broader media business to unlock value.

News Corp owns 80 percent of Move Inc – the US online real estate listings company. The remaining 20 percent is owned by REA. If News Corp were to vendor in its 80 percent ownership of Move Inc so that REA owns 100 percent of the US online realtor, then REA would be the world’s largest pure play real estate information bureau. If News Corp were to then sell down its stake in REA to increase the ‘free float’, then REA shares would almost certainly trade at a significant premium to the then current share price. This is another reason why existing REA shareholders should retain their shares over the long-term.