REA mulls transformative move into British market with $10bn takeover play

Digital property advertising company REA Group has its eyes on British property portal Rightmove, in a potential takeover play expected to be worth about $10bn.

REA Group is making a takeover play for British property portal Rightmove. Picture: Getty Images

Digital property advertising company REA Group is considering a transformational acquisition of British property portal Rightmove in a potential takeover play expected to be worth about £5.4bn ($10.47bn).

A move on the London-listed property portal would see a combination of the two leading digital real estate businesses and enlarge REA’s international exposure.

Rightmove’s shares jumped by 25 per cent in early Monday trading in London, putting its value at about £5.4bn after REA disclosed its interest in the British company under UK takeover rules. The British property portal was capitalised at £4.4bn ahead of REA confirming its interest.

The potential move by REA, which is majority-owned by News Corp, publisher of this masthead, would bring together the two leading property portals in their ­markets.

REA has a substantial track record of investing overseas and is flush with cash after last month selling its stake in Asian property portal PropertyGuru into a private equity takeover.

A tie-up would also diversify REA’s exposure from its mainstay in Australian residential property and associated businesses servicing developers, in financial services and property data.

It would also expand its offshore operations beyond its growing operations in India, where it has the top property platform, and the US, where it has a stake in Move.

REA pointed to the opportunity to create a global digital property business that was a leader in both Australia and Britain, with the move likely to appeal to investors looking for the next leg of the company’s growth.

REA, which is advised by Deutsche Bank, confirmed it was considering the possible cash and share offer, but had not approached nor had any talks with the target about the potential offer. The disclosure was made under English takeover rules, and REA said its board believed there were considerable similarities between the two companies.

REA chief executive Owen Wilson. Picture: John Feder

It highlighted their leading market positions in the core residential business, continued expansion and innovative offerings across adjacent segments, leading audience share and strong brand awareness, as well as highly aligned cultural values.

In a statement, REA said it was a “transformational opportunity” to apply its world-leading capabilities and expertise to enhance customer and consumer value across the combined portfolio and create a global diversified digital property company with No.1 positions in both Australia and Britain.

REA said it considered that a combination of the two businesses would provide a significant opportunity to unlock shareholder value and referred to its record of building businesses around the world. It has managed overseas ventures for close to two decades.

Under the English code rules, REA must, by September 30, either announce a firm intention to make an offer for Rightmove, or say it does not intend to do so.

“The REA board believes the enlarged group would represent a highly attractive investment opportunity for both REA and Rightmove shareholders, combining robust growth with strong margins and significant cash generation, enabling continued capital appreciation and shareholder returns,” REA said. “REA therefore considers that a combination of the two businesses would provide a significant opportunity to unlock shareholder value,” it said.

REA pointed to its “long history of growth and has demonstrated a track record of building businesses over decades to create globally leading platforms that have transformed the way people experience property”.

“With an acquisition of Rightmove, REA would look to enhance the UK property experience for buyers, sellers and renters, supporting Rightmove’s vision “to give everyone the belief they can make their move” while positively contributing to the property market ecosystem with investment and innovation,” the statement said.

REA shares fell 5.3 per cent to $207.44 on the ASX on Monday.

Citi analyst Siraj Ahmed said that while the potential acquisition of Rightmove was likely to be accretive for REA, the key concern was that it came at a time when there was increased competition in the British residential portal market and higher execution risk given the different market structure.

“We do see potential for REA to add strategic value, especially in Rightmove’s goal to expand into commercial and mortgages as well as leveraging data and insights to strengthen the overall business,” Mr Ahmed said.

“While we acknowledge the risk – and arguably it could also raise concerns among investors that growth potential in Australia may be more limited – we see the … negative share price reaction today as overdone, especially given we are very early in terms of a deal being completed,” Mr Ahmed said.

Research house Morningstar said that it agreed with REA’s belief that Rightmove was similar to the Australian group and would benefit from its capabilities and expertise.

Morningstar analyst Roy Van Keulen said that Rightmove was the leading online marketplace for residential property listings in Britain, with around three times the audience share of rival Zoopla – similar to the lead REA has over Domain locally.

“We also believe REA Group can increase Rightmove’s leadership position in the UK.

“REA Group has managed to consolidate its marketplace much more than Rightmove,” he said, citing the different structures in the market.

“Because of this, the company has evolved much deeper capabilities than Rightmove and monetises its leadership position better.”