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The REA Group Ltd share price has declined by 2% following the rejection of its takeover offer for UK-based property portal Rightmove Plc. REA Group, the company behind realestate.com.au, made a bid to acquire Rightmove, but the proposal was turned down by Rightmove’s board of directors. This development has sparked interest in ASX communication stocks, as investors assess the broader implications for the sector.
On 5 September 2024, REA Group (ASX:REA) proposed a non-binding offer to Rightmove, consisting of a cash and share deal. The proposed offer was £3.05 in cash plus 0.0381 new REA Group shares for each Rightmove share. At the time of the proposal, the total value was estimated at £7.05 per Rightmove share, placing Rightmove’s overall valuation at approximately £5.6 billion.
However, on 10 September 2024, Rightmove’s board rejected the offer. The rejection comes as REA Group’s share price has dropped to below $199, down from $205.51 at the time of the offer, making the deal less attractive than initially expected.
Offer Details
REA Group’s offer represented a 27% premium to Rightmove’s share price of £5.56 as of 30 August 2024. The proposal also valued Rightmove at around 20.5x its EBITDA for the 12 months ending 30 June 2024, which was £272 million.
If the takeover had gone through, Rightmove shareholders would have owned approximately 18.6% of REA Group upon the deal’s completion. The cash portion of the offer was to be funded through debt and existing cash reserves.
Why This Deal Was Important for REA Group
REA Group saw significant potential in acquiring Rightmove to expand its global reach. By combining the operations of the two companies, REA Group expected to rapidly reduce debt due to the strong growth and high cash generation of the enlarged business.
The company also announced its intention to seek a secondary listing of its shares on the London Stock Exchange, allowing a broader investor base to gain exposure to a global digital property company.
Additionally, REA Group planned to leverage its expertise in adjacent services, innovation, and technology to support Rightmove’s expansion. This would include enhancing the UK property experience for buyers, sellers, and renters, while minimizing execution risk.
What's Next for REA Group?
While the offer was rejected, REA Group may still pursue further negotiations. The current decline in REA Group’s share price reflects investor concerns regarding the potential impact of the acquisition on shareholder value. Acquiring a large business like Rightmove carries risks, but REA Group’s long-term profit growth potential in markets like Australia, the US, and India remains promising.
With its global expansion strategy and continued focus on innovation, REA Group remains a key player in the digital property space.
