Rightmove has rejected an improved takeover offer from REA Group Ltd.

It is understood that the UK property portal views the sweetened bid of nearly 770 pence a share, or £7.1bn, as undervaluing the company.

The REA offer put forward yesterday is higher than the initial offer of 705 pence per share, or £5.6bn, and the second proposal of 749p per share, or £5.9bn. Rightmove had rejected both the offers, saying they undervalued the company.

Rightmove shares have risen more than a fifth since REA, part of media mogul Rupert Murdoch’s empire, made its first approach earlier month.

The earlier bid, which valued Rightmove shares at about 705 pence a piece, was unanimously rejected.

REA Group issued a statement this morning.

REA Group statement: 

In response to recent press speculation in relation to REA’s possible offer for Rightmove, REA confirms that on 16 September 2024 it made a revised non-binding indicative proposal to the Board of Directors of Rightmove regarding a possible cash and share offer for the entire issued and to be issued share capital of Rightmove at an implied total offer value of 749 pence for each Rightmove share (the “Improved Proposal”). The Improved Proposal was rejected by the Board of Directors of Rightmove on 18 September, continuing to characterise it as fundamentally undervaluing Rightmove. The Improved Proposal followed REA’s initial non-binding indicative proposal, made on 5 September 2024, at an implied total offer value of 705 pence for each Rightmove share (the “Initial Proposal”).

Further to the above, REA announces that, on 22 September 2024, it has made a further increased possible cash and share offer for the entire issued and to be issued share capital of Rightmove (the “Further Improved Proposal”).

Under the terms of the Further Improved Proposal, shareholders of Rightmove would receive for each Rightmove share:

341 pence in cash and 0.0422 new REA shares

Based on the closing share price of REA’s shares of A$198.99 and the A$/£ exchange rate of 1.957 on 20 September 2024, being the last trading date before the Further Improved Proposal was made to the Board of Directors of Rightmove, the Further Improved Proposal implies a total offer value of 770 pence for each Rightmove share and values Rightmove’s entire issued and to be issued ordinary share capital at approximately £6.1 billion.

The terms of the Further Improved Proposal represent:

·      an increase of 9.2 per cent. on the total value of the Initial Proposal made to the Rightmove Board of Directors on 5 September 2024;

·      a 39 per cent. premium to Rightmove’s undisturbed share price of 556 pence on 30 August 2024 (being the last business day prior to the date of REA’s possible offer announcement on 2 September 2024); 

·      a 41 per cent. premium to Rightmove’s 6-month volume weighted average share price of 548 pence;

·      a 43 per cent. premium to Rightmove’s 12-month volume weighted average share price of 540 pence;

·      a 43 per cent. premium to Rightmove’s 24-month volume weighted average share price of 540 pence; and

·      an enterprise value multiple of approximately 22.4x Rightmove’s EBITDA for the twelve months ended 30 June 2024 of £272 million.

Under the terms of the Further Improved Proposal, Rightmove shareholders would hold approximately 20 per cent. of the combined group’s issued share capital following completion of the proposed transaction.

In light of the upcoming deadline under Rule 2.6(a) of the Code on 30 September 2024, REA is announcing the terms of the Further Improved Proposal to provide shareholders of both companies with the opportunity to make their views known regarding the attractiveness of the Further Improved Proposal, and to urge Rightmove shareholders to encourage the Board of Directors of Rightmove to engage in constructive discussions with REA to work towards a recommended transaction. REA notes that as at the date of this announcement, save for the rejection of REA’s prior two proposals mentioned above, REA has had no substantive engagement with Rightmove.  REA remains ready to engage immediately with the Board of Directors of Rightmove.

REA firmly believes that the Further Improved Proposal represents a highly compelling proposition for Rightmove’s shareholders at a significant premium to relevant trading metrics, providing a combination of immediate value certainty in cash and at the same time giving Rightmove shareholders the opportunity to benefit from the future value creation of the combined business. REA has a longstanding track-record of creating value for shareholders. Over the last 10 years, REA has tripled its revenue and EBITDA. REA’s share price has increased by more than 300 per cent. over the last 10 years and by over 75 per cent. in the last two years, testament to its continued strategic and financial delivery.

Commenting on the Further Improved Proposal, Owen Wilson, CEO of REA, said: 

“We believe that the combination of our world-leading expertise and technology with the attractive Rightmove business will create an enhanced experience for agents, buyers and sellers of property. We live in a world of intensifying competition and this proposed transaction would bring together two highly complementary digital property businesses for investment and growth. We have today increased our proposal to an implied value of 770 pence – it provides a combination of immediate value certainty in cash and at the same time gives Rightmove shareholders an increasing opportunity in core digital property and adjacencies where we have much expertise. We are genuinely disappointed at the lack of engagement by Rightmove’s Board and we strongly encourage the Rightmove Board to engage.”

The Board of Directors of Rightmove has characterised REA’s approaches as “wholly opportunistic”. However, Rightmove’s share price has lacked any sustained upward momentum for two years, with a last 24 months VWAP of 540 pence, a last 12 months VWAP of 540 pence and an undisturbed share price on 30 August 2024 of 556 pence, despite being supported by its ongoing share buyback programme and revised strategy announced at last year’s Capital Markets Day.

REA’s approach is driven by the strong strategic rationale that it sees for the proposed transaction and REA believes now is a natural time to be able to support and accelerate Rightmove’s strategic objectives for the benefit of all stakeholders. REA’s expertise will enable it to support Rightmove in retaining its number one market position given the heightened competition and increased investment in the market and de-risk the execution of its strategy.

REA continues to believe that the Further Improved Proposal represents a highly compelling proposition 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 the UK;

·      enhance customer and consumer value across the combined portfolio utilising REA’s globally leading capabilities and expertise, including REA’s top-of-funnel capabilities (e.g. content and SEO), and REA’s expertise building highly engaging and personalised consumer experiences which have contributed to over 50% of Australians (over the age of 18 years) using realestate.com.au and 47% of realestate.com.au visits coming via REA’s mobile app in FY24;

·      apply REA’s experience in investing in and growing adjacencies to support Rightmove in its ambition to accelerate expansion in these areas, noting REA is more advanced in executing its adjacency strategy (including building the #1 commercial property portal in Australia and operating significant financial services and property data businesses), and assist Rightmove to minimise execution risk as it invests further in adjacencies;

·      benefit from knowledge transfer, leading technical capabilities as well as support from targeted investment and innovation in a competitive market;

·      enhance the UK property experience for buyers, sellers and renters, positively contributing to the property market ecosystem; and

·      create a highly attractive investment opportunity for both REA and Rightmove shareholders, delivering continued capital appreciation and shareholder returns.

The cash component of the Further Improved Proposal is expected to be fully financed through long-term third-party debt and existing cash resources. Given the strong growth and high cash generation of both REA and Rightmove, REA expects the combined group will be able to rapidly delever, consistent with REA’s track record of financial discipline, and receive an investment grade rating at completion. REA expects to target a leverage ratio for the combined group of less than 3x within 18 months post-completion whilst delivering strong shareholder returns in the form of dividends.

REA reiterates its intention to apply for a secondary listing of all of its ordinary shares in London, which would enable trading in REA ordinary shares on both the London Stock Exchange and the Australian Securities Exchange in a fully fungible manner. This 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.

Under the terms of the Further Improved Proposal, Rightmove shareholders would remain entitled to receive the 2024 interim dividend of 3.7 pence per share, as announced by Rightmove on 26 July 2024, without any reduction to the terms of the Further Improved Proposal.

The Further Improved Proposal is non-binding and subject to customary conditions, including completion of due diligence to the satisfaction of REA. REA reserves the right to waive in whole or in part any of the conditions to the Further Improved Proposal. REA is committed to its capital allocation framework and maintains a disciplined approach to mergers and acquisitions.

There can be no certainty that an offer to Rightmove shareholders will be made by REA or that any transaction will proceed. REA shareholders do not need to take any action at this time.

In accordance with Rule 2.5(a) of the Code, REA reserves the right to: (i) introduce other forms of consideration and / or vary the mix or composition of consideration of any offer; and (ii) to implement the transaction through or together with a subsidiary of REA or a company which will become a subsidiary of REA. REA also reserves the right to make an offer for Rightmove at a lower value and/or on less favourable terms than those described in this announcement: (i) with the agreement or recommendation of the Board of Rightmove; (ii) if a third party announces a firm intention to make an offer for Rightmove; (iii) following the announcement by Rightmove of a Rule 9 waiver transaction pursuant to Appendix 1 of the Code or a reverse takeover (as defined in the Code). If after the date of this announcement Rightmove declares, makes or pays any dividend or distribution or other return of capital to its shareholders, other than the previously announced interim dividend of 3.7 pence per Rightmove share declared on 26 July 2024, REA reserves the right to make an equivalent reduction to the Further Improved Proposal.

REA will continue to keep the ASX informed in accordance with its obligations.

Rightmove issued the following statement: 

“The Board of Rightmove plc notes the announcement from REA Group Ltd (“REA”) earlier today and confirms that it received a third unsolicited, non-binding and highly conditional proposal from REA regarding a possible cash and share offer to acquire the entire issued and to be issued ordinary share capital of Rightmove (the “Increased Proposal”).

This third non-binding proposal was 341 pence in cash and 0.0422 new REA shares for each Rightmove ordinary share. Based on the closing price of REA on 23 September 20241, this revised proposal implied an offer value of 761 pence.

This follows a second proposal of 341 pence in cash and 0.04 new REA shares for each Rightmove ordinary share which was rejected by the Rightmove Board on 18 September 2024. The Board will carefully consider the Increased Proposal, together with its financial advisers.

Andrew Fisher, Rightmove’s chair, commented: “Rightmove is an exceptional company with a very clear strategy, a consistent track record of delivery and a strong management team. The Board is confident in the Company’s short and long term prospects, and sees a long runway for continued shareholder value creation.

“Based on the implied value and structure of REA’s first and second indicative non-binding proposals, we considered these proposals to be uncertain, highly opportunistic and unattractive. Accordingly, the Board unanimously rejected them.

“The Board will continue to act on behalf of our shareholders and respond to the most recent proposal in due course.”

Rightmove shareholders should take no action in respect of the Increased Proposal.

This announcement is being made without the agreement or approval of REA. There can be no certainty that any offer will be made nor as to the terms on which any offer may be made.

Any offer for Rightmove is governed by the City Code on Takeovers and Mergers (the “Code”). Under Rule 2.6(a) of the Code, REA must, by not later than 5.00 p.m. on 30 September 2024, either announce a firm intention to make an offer for Rightmove in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline can be extended with the consent of the Takeover Panel in accordance with Rule 2.6(c) of the Code.”

EYE NEWSFLASH: Rightmove rejects £5.6bn takeover offer from Murdoch’s REA Group