REA Group Ltd (ASX: REA) shares have sunk 7% after the company announced the possibility of a huge UK takeover.
REA is the owner of realestate.com.au, various Australian-related property businesses, and it has investments in property sites in India, other Asian countries and the US.
Potential Rightmove acquisition in the UK
REA Group announced to the ASX it is considering a “possible” cash and share offer for the Rightmove business in the UK. The company said, at this stage, REA has not approached nor had any discussions with Rightmove about a potential offer.
Rightmove claims to be the UK’s number one property site.
REA thinks there are “clear similarities” between REA and Rightmove with their market positions in the “core residential business, continued expansion and innovation of offerings across adjacent segments, leading audience share and strong brand awareness”.
The ASX share thinks there is a “transformational opportunity” to apply its globally-leading capabilities to “enhance customer and consumer value”.
REA Group thinks combining “robust growth with strong margins and significant cash generation” will help grow the profit and share price.
In a pitch to unconvinced Rightmove and REA shareholders, REA said it has a long history of growth and has demonstrated a “track record of building businesses over decades to create globally leading platforms”.
What would REA Group do in the UK?
While it hasn’t given a typical acquisition presentation yet, the company did say the following:
With an acquisition of Rightmove, REA would look to enhance the UK property experience for buyers, sellers and renters, supporting Rightmove’s vision “to give everyone the belief they can make their move” while positively contributing to the property market ecosystem with investment and innovation.
Final thoughts on REA Group shares
The ASX share noted that there can be no certainty that an offer will be made.
For a takeover to get across the line, there normally has to be a premium of at least 20% to 30% compared to the current share price. So, it could take an offer of more than $10 billion to make Rightmove shareholders interested.
The Rightmove price/earnings ratio (p/e ratio) is much lower than REA Group’s, so it would make sense to include some REA Group shares as part of the deal. I can see the attraction of the deal, if Rightmove shareholders agree to it for a fair price.
I think REA Group shares would be more attractive if it had the number one position in the UK market.
