REA Group Withdraws Offer for Rightmove Amid Lack of Engagement
REA (REA) Share Update September 2024 Monday 30th
REA Group Withdraws Offer for Rightmove
REA Group Ltd (ASX: REA) has announced that it will no longer pursue its bid to acquire Rightmove plc after the latter rejected its fourth proposal. This decision marks the end of REA's attempts to create a global digital property leader through this acquisition.
Instant Summary:
- REA Group withdraws its fourth proposal to acquire Rightmove.
- Rightmove's Board rejected the proposal, citing lack of engagement.
- REA's proposal offered a 45% premium on Rightmove's average share prices.
- REA remains focused on other growth opportunities, including in India.
Background
On 30 September 2024, REA Group Ltd announced that it would no longer pursue its bid to acquire Rightmove plc. This decision came after REA's fourth non-binding indicative proposal was rejected by Rightmove's Board on 27 September 2024. The proposal included a combination of cash and shares, with an implied offer price of 775 pence per Rightmove share, plus a special dividend of 6 pence per share. This represented a 45% premium to Rightmove's 12-month and 24-month volume-weighted average share prices.
REA's Strategic Rationale
REA's approach to Rightmove was driven by a clear strategic rationale. The company aimed to create a global and diversified digital property company, leveraging its strong market positions in Australia and the UK. REA believed that the proposed combination would have provided Rightmove shareholders with an opportunity to participate in a fast-growing, diversified global leader while receiving value certainty in a competitive market environment.
Lack of Engagement from Rightmove
Despite the potential benefits, Rightmove's Board provided limited engagement. The first substantive meeting between the Chairmen of both companies took place on 28 September 2024, followed by another meeting on 29 September 2024. However, no meaningful information or presentation was provided by Rightmove, impeding the ability to progress discussions. REA expressed disappointment that Rightmove's Board was unwilling to engage further or extend the 30 September 2024 deadline to explore a mutually acceptable proposal.
REA's Future Plans
REA remains committed to its capital allocation framework and disciplined approach to mergers and acquisitions. The company has a strong track record of creating value for shareholders and continues to see significant growth potential across its core business, adjacent opportunities, and in India. REA's full-year financial results, released on 9 August 2024, showed a 23% increase in revenues and a 27% increase in EBITDA (excluding associates), highlighting the company's robust growth potential.
The withdrawal of the offer could have mixed impacts on REA's stock. On one hand, the decision reflects REA's financial discipline and commitment to shareholder value, which could be viewed positively by investors. On the other hand, the missed opportunity to acquire Rightmove might be seen as a setback in REA's strategic expansion plans. Overall, the impact is expected to be neutral to slightly positive, as REA's strong financial performance and growth potential remain intact.
Investor Reaction:
Analysts are likely to have mixed reactions to the news. Some may appreciate REA's disciplined approach and focus on other growth opportunities, while others might have preferred to see the acquisition go through. The lack of engagement from Rightmove's Board is a key point of contention, and investors will be watching closely to see how REA leverages its strong financial position for future growth.
Conclusion:
Investors should keep an eye on REA's future growth initiatives, particularly in its core business and new markets like India. The company's disciplined approach to mergers and acquisitions, combined with its strong financial performance, positions it well for continued success. Stay informed on REA Group's developments and consider the long-term potential of your investments.