Breaking news hit the property sector today as Rightmove (LSE: RMV), the UK’s largest online property portal, rejected a £5.6bn takeover offer from Australia’s REA Group. This development has significant implications for Rightmove’s share price and presents both opportunities and challenges for potential investors. Let’s take a closer look.
The takeover proposal
REA Group, which is majority-owned by Rupert Murdoch’s News Corp, made an initial cash and shares bid valuing Rightmove at 705p per share. This represented a 27% premium to the share price before the potential takeover interest became public. The offer comprised 305p per share in cash, with the remainder in REA stock.
The board swiftly rejected the proposal. They stated that it “fundamentally undervalued Rightmove and its future prospects”. The company noted that based on REA’s current share price, the actual value of the offer had decreased to 698p per share.
As expected, the news has had a significant impact on Rightmove’s share price. Since the potential acquisition was first reported in late August, the shares have risen by approximately 20%. The shares are fairly flat on Wednesday, up 0.2%, with many likely expecting an initial approach to be rejected.
While management has rebuffed the approach, this may not be the end of the story. Under UK takeover rules, REA Group has until the end of September to make a formal offer or walk away. Some analysts suggest that a premium of 40%-50% may be required to strike a deal. From my perspective, a discounted cash flow (DCF) calculation, suggesting fair value is only 4.8% above the current price, makes this an interesting proposition.
Strong fundamentals
With an 80% market share in UK online property listings, the firm has a dominant position that clearly appeals to international players.
The rejected offer comes at a time when competition in the UK property portal market is intensifying. Rival OnTheMarket was recently acquired by US real estate data group CoStar and has launched an expansion push. This attempted takeover highlights the increasing interest in the property tech sector, which could lead to further consolidation or competition.
By rejecting the offer, Rightmove’s management has signalled confidence in the company’s standalone prospects. CEO Johan Svanstrom has been exploring growth areas far beyond core property listings, including mortgage services and commercial property. Investors will be keen to see if this strategy can deliver value that exceeds what REA Group was offering.
While a takeover may excite many investors, there’s still a decent likelihood that the shares could face downward pressure if REA Group walks away. The broader economic environment, including interest rates and the health of the property sector, will also continue to influence performance going forward.
I’ll be watching
The rejected takeover offer has certainly put Rightmove in the spotlight. For potential investors, this situation presents a mixed bag. On one hand, there’s the possibility of an improved offer. On the other, there’s the risk of volatility if takeover talks fail to progress.
I suggest it’s important to look beyond the immediate excitement of a potential takeover and consider Rightmove’s long-term prospects, competitive position, and ability to generate sustainable growth. While the rejected offer has added an intriguing element, wise investors will continue to focus on the fundamental strengths of the business. I’ll be keeping my eye on this one.
