Murdoch’s UK property bid may yet get even sweeter
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Yawen Chen
LONDON, Sept 23 (Reuters Breakingviews) -Rupert Murdoch is in a similar position to a London buyer trying to get on the housing ladder. The tycoon’s online property listing company REA Group REA.AX on Monday outlined a third attempt to buy Rightmove RMV.L, valuing the UK’s largest online real estate listing portal at 6.1 billion pounds ($8.1 billion). As with property transactions in the UK capital, an offer can simultaneously be generous and not a done deal.
It’s hardly surprising Rightmove’s board have finally deigned to “carefully consider” REA’s latest bid, which sports a premium over its undisturbed price of 39%. Other recent UK takeover targets like John Wood Group WG.L and Direct Line DLGD.L earlier this year saw their shares fall back to pre-bid levels after foreign buyers walked away. On the face of it, Murdoch’s group is already offering a rich price: assuming a modest 10 million pounds in synergies, a 25% tax rate and that Rightmove makes 300 million pounds of operating profit in 2025 – as per LSEG-compiled analyst estimates - REA’s return on invested capital would be just 4%.
Still, the latest offer, over half of which is shares, suggests a willingness from Murdoch to bust through some assumed red lines to seize control of the key player in a much bigger market. His News Corp NWSA.O, which currently owns about 62% of REA and counts the latter as a big part of the group’s valuation, would be diluted to around 49%. The rationale may be that the tycoon could regain control by repurchasing shares from UK institutional investors after a successful bid.
More importantly, the Rightmove board may also think REA has more scope to up the cash proportion of the deal from its current 44%. The latest bid would see the combined entity’s net debt rise to about 3.3 times their combined 2025 EBITDA, according to Breakingviews calculations based on LSEG estimates. But REA expects to target a leverage ratio for the combined group of less than 3 times within 18 months after the deal is closed, and JPMorgan analysts expect that metric to fall below 2.5 times.
Rightmove’s share price remains tangibly below the offer level. But given REA’s paper has fallen 11% in value since the offer first emerged, Rightmove investors may still need convincing. And the example of fellow UK group Currys CURY.L may provide encouragement for Rightmove’s board to play hardball: despite an aborted foreign bid earlier this year, its shares are well above what was offered. As with London property, Murdoch may just have to close his eyes and pay more.
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CONTEXT NEWS
UK property listing portal Rightmove said on Sept. 23 it would carefully consider Australian property listing firm REA Group’s sweetened 6.1 billion pound ($8.12 billion) takeover bid for the company, after rejecting two previous proposals.
The latest proposal consists of 341 pence in cash and 0.0422 new REA shares, giving Rightmove an implied value of 770 pence per share.
Rightmove said the non-binding and “highly conditional” bid would be considered by the board and the company's financial advisers.
REA has until Sept. 30 to make a formal offer for Rightmove or walk away.
Shares of Rightmove rose 2.5% to 691 pence by 0828 GMT on Sept. 23.
REA shares fell 2.5% to 194 Australian dollars on Sept. 23.
Recent share price performances of Rightmove and REA https://reut.rs/3TCbawB
Editing by George Hay and Streisand Neto
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