(Bloomberg) — REA Group Ltd., part of Rupert Murdoch’s sprawling empire, is considering a takeover offer for $5.8 billion UK property portal Rightmove Plc in a bid to create a global digital real estate company.
Most Read from Bloomberg
The Australian property listing provider, which is controlled by News Corp., said Monday it’s considering a possible cash and share offer for Rightmove. REA said it hasn’t approached the company nor had any talks about a bid.
Shares of REA dropped as much as 8% in Sydney, the biggest intraday decline since December 2022, on Monday amid concerns that it may have to issue stock to fund a deal. Rightmove has slipped 3.5% in London trading this year, giving it a market value of £4.38 billion ($5.8 billion).
Any deal would boost the scale of REA, which is the largest player in the Australian online real estate industry and has already expanded into other markets including India. Rightmove has maintained steady revenue growth in recent years, and the UK housing market is expected to pick up as interest rates decline.
REA’s disclosure, triggered by media speculation, now forces the company into a decision one way or the other. Under the UK’s takeovers code, REA must announce a firm intention on whether to bid by Sept. 30 at 5 p.m. London time.
“A combination of the two businesses would provide a significant opportunity to unlock shareholder value,” REA said in a statement.
REA said it would add “investment and innovation” to Rightmove following any acquisition. The enlarged group would deliver “robust growth with strong margins and significant cash generation, enabling continued capital appreciation and shareholder returns,” the Richmond, Victoria-based company said.
The prospective deal is a signal of the primacy of scale in the digital property-broking business. REA has a market value of A$27 billion ($18 billion) and trades at almost twice that of local competitor Domain Holdings Australia Ltd. on a price-to-earnings basis, in large part due to its bigger user base and growth abroad.
Still, investors have become wary of corporate Australia’s patchy record realizing real gains from blockbuster overseas M&A. What’s more, any deal by REA would require an equity raise of at least A$6.1 billion, or about 23% of its current market capitalization, for it to be accretive, Bloomberg Intelligence analysts Jack Baxter and Andrew Torchia calculated.
“Its top valuation supports an equity raise, but there would be execution risk in the deal versus shareholder distributions,” the pair wrote in a note on Monday.
Most Read from Bloomberg Businessweek
©2024 Bloomberg L.P.