REA plans dual listing if $11bn British portal takeover successful

The digital property advertising company would vault to become a major global player if its bid for Rightmove goes ahead, but it must overcome a rebuff from the target’s board.

REA Group CEO Owen Wilson. Picture: John Feder/The Australian

Digital property advertising company REA Group has revealed that its acquisition play for British property portal Rightmove would see it dual list in London if its cash and scrip bid valuing the company at about £5.6bn ($11bn) succeeded, despite its target rejecting the bid.

The company’s move on the London-listed property portal would see a combination of the two leading digital real estate businesses in Australia and Britain, and provide the next leg of growth for REA, though the British company appears to be holding out for a higher offer.

REA last week disclosed that it had made a non-binding indicative proposal to Rightmove about a possible cash and share offer for the company, and said on Wednesday morning that this approach was rejected by the target’s board on September 10.

REA is majority controlled by News Corporation, publisher of this masthead.

Under the terms of the proposal, Rightmove shareholders would receive 305 pence in cash and 0.0381 new REA shares for each Rightmove share.

Based on the closing share price of REA’s shares of $205.51 and the exchange rate of 1.956 on September 5, when the proposal was made to Rightmove, it implies a total offer value of 705 pence for each Rightmove share and valued the company at approximately £5.6bn.

Rightmove shares closed at 670.8 pence at the end of trading on the London Stock Exchange on Tuesday, and could lift to around this level once trading reopens.

Houses in London. Picture: Dan Kitwood/Getty Images

REA said the terms were a 27 per cent premium to Rightmove’s undisturbed share price of 556 pence at the end of August, before the offer was made. They also show an enterprise value multiple of approximately 20.5 time Rightmove’s earnings before interest, taxes, depreciation, and amortisation, for the 2024 financial year of £272m.

Under the deal, Rightmove shareholders would hold approximately 18.6 per cent of the combined group’s issued share capital following completion of the proposed transaction. The cash component of the proposal is expected to be funded through third party debt and existing cash resources.

REA said that given the strong growth and high cash generation of both REA and Rightmove, it expects the enlarged group would be able to rapidly deliver on its expansionary ambitions, in keeping with its track record.

REA intends to apply for a secondary listing in London, which would enable trading in REA ordinary shares on both the London Stock Exchange and the Australian Securities Exchange. It said this move would provide the opportunity for a wider pool of investors to gain exposure to a global and diversified digital property company on the London Stock Exchange.

“The proposal combines certainty of value, in cash, at a significant premium to recent trading while at the same time giving Rightmove shareholders the opportunity to benefit from the future value creation of the combined business,” the company said in a statement.

While it is constrained under British takeover rules from elaborating, REA’s statement said it believes the proposal is a “highly compelling proposition”.

It cited the potential to unlock value for both Rightmove and REA shareholders by creating a global and diversified digital property company, with strong margins and significant cash generation, underpinned by number one positions in Australia and Britain.

It noted that it could enhance customer and consumer value across the combined portfolio using REA’ capabilities and expertise, as well as use its experience in investing in and growing adjacencies to support Rightmove as it shifts into new areas.

REA said the combined group would benefit from knowledge transfer, leading technical capabilities, as well as support from targeted investment and innovation in a competitive market.

REA shares slipped by $4.49 to $197.99 as Rightmove said the bid was opportunistic and undervalued the company and its future prospects.

MST Marquee analyst Fraser McLeish wrote in a report that he expected that REA was going to have to pay a large premium of 35 per cent to 45 per cent to get its hands on Rightmove. But he wrote that the large multiple differential between the stocks meant that an acquisition would still be highly accretive.

He added that Rightmove’s revenue is well below REA despite operating in a larger market and he expects that REA sees an opportunity to ramp up investment and grow revenue per listing.