Russ Mould, investment analyst at AJ Bell, says REA moving on Rightmove would amount to a highly opportunistic bid.
The target’s share price has been weighed down by investor worries about a lacklustre property market and a new competitive threat after US property giant CoStar struck a deal to expand into the UK.
Those issues have led to a fairly static share price performance from Rightmove, keeping it well below the highs of 2021 and lagging the broader rally in UK equities more recently. It had underperformed the FTSE 100 over the past 12 months, prior to today’s announcement.
STRONGER EARNINGS
It is easy to see why REA would be interested in Rightmove. The UK property market is traditionally vibrant under normal economic circumstances. Once you consider the new Labour government has pro-housing policies and a strategy firmly focused on improving the UK economy, there is the potential for Rightmove’s earnings to be much stronger in time.
REA could take a long-term view and buy the business now while sentiment is patchy and pay much less than if it had bought at the peak of the property market.
UNIQUE ASSET
Rightmove is a unique asset on the UK stock market and shareholders are unlikely to accept the first bid that comes along. It is the dominant property portal in the UK and should command a premium takeout price. Shareholders might be frustrated at the recent share price performance, but if they’ve stuck around for the past year then they’ve clearly got their eye on the long-term prize, otherwise they would have jumped ship by now.
REA indicating it would structure any bid as a cash and shares deal would mean Rightmove investors could maintain exposure to the company post-takeover through the equity component. However, some investors might not want to own Australian-listed stock. A straight cash deal is often more effective and persuasive.
LOGICAL CHOICE
Other companies are likely to be interested in Rightmove given its market-leading position. Cash-rich private equity firms would be the logical choice, breathing new life into Rightmove so it can fight off the threat posed by CoStar’s UK entry (via its acquisition of OnTheMarket) and capture the expected rebound in the UK property market.
A successful takeover of Rightmove would add to the London Stock Exchange’s problems. It would represent yet another well-known company taken off the market and further shrink the pool of big-name stocks available to investors.
While there is always natural turnover on the market through mergers and acquisitions, losing Rightmove over the coming months would happen at a sensitive time for the stock exchange operator as it is desperate to add companies to the roster of UK-listed stocks, not see further subtractions.
