Rightmove rejects Murdoch’s REA’s offer of £5.6bn

Rightmove, Britain’s largest property listing company, rejected an initial cash-and-shares bid from Australia’s REA Group, which valued the UK business around £5.6bn.

REA, controlled by Rupert Murdoch’s News Corp., stated that its initial proposal valued Rightmove’s shares at 705, a premium of 27 per cent to the UK firm’s share price before the Australian company’s interest was made public.

Rightmove has said that it rejected the “highly-conditional proposal” of REA on Tuesday, calling it “wholly opportunistic”. It also said it “fundamentally undervalued Rightmove’s future prospects.”

REA, working with Deutsche Bank said last week that it was considering a Rightmove bid but hadn’t yet approached the UK company. The indicative offer made public on February 2 consisted of 305p per share in cash, and the remainder in REA shares, which at the time the offer was made, were trading at A$205.51 ($136.84 US).

REA stated that Rightmove shareholders will own 18.6 percent of the combined company based upon its indicative offer. It also said it intends to seek a second listing on the London Stock Exchange so UK investors can trade the shares.

The proposal provides certainty of value in cash at a significant premium over recent trading, while also giving Rightmove’s shareholders the chance to profit from future value creation by the combined business, REA stated in a press release.

Rightmove stated that the offer was 698p per share based on the share price of Tuesday, because REA shares had dropped since the company made its offer.

According to UK takeover laws REA has until September 30th to submit a formal bid or withdraw.

Rightmove shares closed Tuesday’s London trading at 671p. Since the news broke of a potential takeover, shares in Rightmove have increased by around 5%. The FTSE 100 has a total market cap of around £5.2bn. REA shares fell 2.2 percent to A$197.99 Wednesday.

REA stated in a statement released last week that they could “apply their globally leading capabilities and expert knowledge” to improve the two companies as a diversified company. Analysts say that there is little room for synergies, given the fact that both companies are located in different geographical areas.

Siraj Ahmed, a Citi analyst, stated in a recent research note that a premium between 40-50 percent over the Rightmove prices may be needed to close a deal.

Entcho Raykovski of E&P said that REA may look to increase the cash component, but would not likely raise the share component, as it could dilute News Corp’s holding in Australian company below 50%.

Although the UK platform holds a market share of 80 percent in online property listings, it has warned that customer growth is slowing. CoStar, a US-based real estate data company, acquired rival OnTheMarket last year and launched a major expansion drive.

Johan Svanstrom, the chief executive of Rightmove, has been looking for growth areas outside its core business. These include mortgage services and commercial real estate.

Starboard Value, an activist investor, pressed News Corp to separate the property business (including the group’s control stake in REA) from the media businesses last year.

Starboard, in a letter to shareholders of the company, has since submitted a nonbinding proposal to end Murdoch’s control over News Corp.

Bloomberg was the first to report on the details of REA’s offer.