REA Group withdraws Rightmove takeover bid after British company’s rejection

Digital advertising company REA Group has pulled its takeover proposal for British property portal Rightmove after being rejected for the fourth time.

British property portal Rightmove has now rejected three sweetened proposals from REA after it made an initial approach at the beginning of September. PIcture: Getty Images

Digital advertising company REA Group has pulled its takeover proposal for British property portal Rightmove after being rejected for the fourth time when its target said its latest £6.2bn ($12.03bn) bid undervalued its growth prospects.

In the wake of that move, REA has dumped plans to formally bid for the British company, confirming that it does not intend to make an offer for Rightmove, despite what it called the “clear strategic rationale” and opportunity to create a global and diversified digital property company.

The Australian company said a combined company would have had strong margins and significant cash generation, underpinned by number one positions in Australia and Britain.

“REA believes the proposed combination would have provided Rightmove shareholders the opportunity to meaningfully participate in a fast growing, diversified, global leader whilst receiving value certainty in an operating environment challenged by increased market competition,” the Australian company told the London Stock Exchange.

In a broadside at Rightmove’s takeover defence tactics, the Australian company said the British company’s share price “has lacked any sustained upward momentum for two years” despite being supported by a share buyback and a revised strategy announced last year.

REA said its implied offer price for Rightmove of 775 pence per share stood at a 45 per cent premium to the target’s 12-month volume weighted average share price. Investors are likely to welcome the Australian company ending the escalating bid and focusing on other growth areas, although it reiterated its “disappointment” about how its interest was handled by Rightmove.

“Against a backdrop of intensifying global competition, we approached Rightmove’s Board because we strongly believed in the opportunity to create a globally diversified leader in the digital property sector that would benefit both REA and Rightmove shareholders. We were disappointed with the limited engagement from Rightmove that impeded our ability to make a firm offer within the timetable available. They had nothing to lose by engaging with us,” REA chief executive Owen Wilson said.

He cited his company’s disciplined approach to M&A and called out other opportunities like its recent move to take a stake in Athena Home Loans. “We have a clear strategy to expand in our core business and adjacent markets, and India represents an exceptional opportunity for growth,” he said.

The move came after Rightmove bowed to investor pressure and its chairman, Andrew Fisher, met with REA chairman Hamish McLennan, who advocated for the transaction. At REA’s request, there was a further meeting but substantive information could not be exchanged.

The Australian suitor had requested an extension to the looming “put up or shut up” deadline and access to due diligence information, to allow it to consider a potential fifth proposal. But Rightmove refused and said REA had had enough time to make an attractive proposal, and it would pursue its own strategy, despite its high regard for the Australian company.

“We respect REA and the success they have achieved in their domestic market. However, we remain confident in the stand-alone future of Rightmove. Rightmove has been the leading operator in the UK for over 20 years, and it has differentiated market presence, branding and technology, and very significant opportunities for future growth,” Mr Fisher said.

“To the extent REA wants to put forward a further proposal, I urge them to submit a best and final proposal ahead of today’s 5pm deadline such that we can bring certainty to this process.” The deadline for REA to move again was effectively 2am on Tuesday local time.

Rightmove has now rejected three sweetened proposals from REA after it made an initial approach at the beginning of September. REA had hoped that opening talks with the British group would allow it to win an extension of time after its earlier knock-backs.

Under the latest deal, Rightmove shareholders would have received 346 pence in cash and 0.0417 new REA shares, which implied an offer value of 780 pence. The last proposal added 5p in cash and 5p in REA shares, implying an additional 10p in value.

REA Group chairman Hamish McLennan. Picture: Jane Dempster

Rightmove said it had considered views from its shareholders and representations from REA.

“The board has concluded that the latest proposal remains unattractive and continues to materially undervalue Rightmove and its future prospects,” it said.

Rightmove weighed the implied value of REA’s offers and the mix of cash and shares being proposed against continuing as a stand-alone company. “The board has concluded that shareholder interests would be better served through the execution of Rightmove’s stand-alone strategic plan,” it said, referencing a strategy put up in November, which had failed to excite investors.

Rightmove defended its approach, saying it knew the REA team well and had taken its calls while the suitor took an “incremental and iterative approach to price discovery”.

The Australian company is majority-owned by News Corporation, publisher of The Australian.

REA shares rose $1 to $201 ahead of news of it ending the bid and are expected to rally on Tuesday. Rightmove shares had dropped by just over 7 per cent to 621.40 pence in London in early afternoon (overnight Australian time) trading in London, after REA dropped its takeover proposal.