Ritika Janiya
It is the third time around for Australian REA Group, an enterprise owned by Rupert Murdoch’s News Corp, to attempt to acquire UK online property marketplace Rightmove. Yesterday alone, REA increased its offer to £6.1 billion. Should the company accept? That answer is no, and here’s why.
What’s Happening?
Rightmove’s board of directors is to “carefully consider” this new offer. However, it does make sense to remember that saying “no” for the third time is the correct thing to do. The third offer from REA is in the same line as the previous two: bluntly reject.
The CEO of REA, Owen Wilson, was disappointed by the lack of response from Rightmove over its last two bids. What seems to be overlooked is that a company can refuse to bargain if it feels that the offer made is not good enough. The chairman of Rightmove has already described previous offers from REA as “speculative, highly opportunistic, and unattractive.” The latest offer of 761p per share-a minuscule increment of 1.6% above the second offer-can hardly change the impression.
Why the Offer Isn’t Good Enough
The group may also be able to claim that, on existing share prices, their offer would be worth a little more. Again, though, most of the offer is not in cash. Only 341p of the 761p is in cash while the rest would be in REA shares which have depreciated about 10% in value since the bidding began. This frightens investors who fear REA is paying too much for a company from far afield.
In the UK, Rightmove warrants much better compensation if they are to persuade investors to part with their shares. Of course, their share price has barely moved in the last two years, but that does not mean the company is struggling. Rightmove still owns about 85% of market share when it comes to online property listings. Their profit margins are a staggering 70%, and they are generating enough cash to buy back shares and pay dividends to investors.
Space to Grow
Rightmove does not exhaust brainstorming ideas for growth either. They are step by slow step foray into mortgage broking and commercial property. Bernstein analysts believe that the operating profit of Rightmove can jump as high as 55% by 2028 from the base year, that is 2024. That leaves them with loads of room to stretch without taking a crutch to prop it up from REA.
If we go by the opinions that are coming up from other analysts, the general view is that Rightmove investors aren’t being wooed in by the offer REA has come up with. The above two houses, Peel Hunt and Panmure Liberum, still of the opinion that the offer is way on the lower side to entice the long-term investor. Were Rightmove’s board to tell REA to come back with a much better offer, that wouldn’t be unpopular opinion.
A Fair Offer?
At first, a 37% premium to the share price before REA’s first offer may seem appealing. For Rightmove, that is just not good enough. They must be given a right price, one that does justice and sounds very realistic to represent their worth. Rightmove is a player in its space and should be viewed as such.
The Decision Making
This bid has not been described as the last by REA, so there is enough time for some negotiations. On the other hand, a formal response from Rightmove is due shortly. For now, though, the Rightmove board should continue to say no to the Murdochs. Their current strategy is just working fine.
