REA, which is majority-owned by News Corp, said it was considering a possible cash and share offer for Rightmove
Property listings company REA Group is considering buying Rightmove to create a global real estate firm, the Australian company said on Monday, sending the British housing portal’s shares surging.
Shares in London-listed Rightmove soared 27.6% to £7.09, giving it a market cap of £5.59 billion.
REA, which is majority-owned by News Corp, said it was considering a possible cash and share offer for Rightmove. However, it said it had neither approached nor held talks with Rightmove.
Britain’s biggest property portal Rightmove said it has not received any approach from REA about a possible offer.
Analysts at Investec in a note agreed with REA that the offer and the enlarged group presents a highly attractive investment opportunity, given an easing interest rate environment in the U.K. and recent new investment starting to pay off.
Shares of REA, in which the Murdoch family-controlled media company News Corp owns a more than 61% interest, dropped 8% before ending 5.3% lower at $139.86, one of the day’s biggest losers on the benchmark.
If the deal goes through, it would be the biggest so far this year in which an Australian company buys an overseas firm, according to data from LSEG. It would also be among the largest deals for a UK-listed company this year.
Despite the potential long-term benefits of a strategic acquisition, the takeover move suggests capital vulnerability and risks, Junvum Kim, Saxo Asia Pacific senior sales trader at Saxo Markets, said about the potential deal for REA.
REA currently has free cash flow amounting to only one-tenth of the market cap needed to acquire Rightmove, necessitating additional financing through capital raising, which could potentially dilute the stock price, Kim added.
A deal would boost growth for REA, the biggest player in Australia’s online property space which has already developed a foothold in Asian countries.
Rightmove, on the other hand, has benefited from the strength of its lettings business amid a prolonged weakness in the home sales market.
Jefferies analysts point out that the UK housing market is thrice the size of the Australian market and Rightmove is a highly profitable business that generates large volumes of buyer and seller leads that would help lower operational costs.
Rightmove will be hoping to gain on the home sales front as a drop in interest rates is expected to revive homebuyer demand.
