The REA Group Ltd (ASX: REA) share price is under the spotlight after announcing it was ending its interest in Rightmove.
REA Group is the owner of various property businesses in Australia, such as realestate.com.au. It also has investments in India and the US. Rightmove is a large property portal business in the UK.
REA Group ends Rightmove interest
The ASX share confirmed in an ASX announcement it would not be making another offer for Rightmove.
It was interested in Rightmove because of the potential to “create a global and diversified digital property company, with strong margins and significant cash generation, underpinned by number one positions in Australia and the UK.”
REA pointed out that Rightmove’s share price lacked any sustained upward movement for two years despite the share buyback and revised strategy.
The ASX share was disappointed that its fourth proposal was rejected, at an offer price of £7.75 per Rightmove share representing a 45% premium to the 12-month and 24-month average share price.
REA said it’s committed to its capital allocation framework and “maintains a disciplined approach to mergers and acquisitions.”
The first substantive engagement was a high-level Chairperson to Chairperson meeting which took place on 28 September 2024, followed by another meeting on 29 September 2024 where no information was given by Rightmove to REA.
REA said:
The lack of meaningful engagement and the consistent lack of information provided by Rightmove impeded the ability to progress discussions and work together towards a recommended transaction, within the timetable permitted. All other contact has been cursory and procedural.
Management commentary
The REA CEO Owen Wilson said:
Against a backdrop of intensifying global competition, we approached Rightmove’s Board because we strongly believed in the opportunity to create a globally diversified leader in the digital property sector that would benefit both REA and Rightmove shareholders.
We were disappointed with the limited engagement from Rightmove that impeded our ability to make a firm offer within the timetable available. They had nothing to lose by engaging with us.
We are always financially disciplined when we look at M&A and reinvestment in our business and will continue to focus on the many other opportunities ahead of us. Our recent investment in Athena Home Loans is a great example of this.
We have a clear strategy to expand in our core business and adjacent markets, and India represents an exceptional opportunity for growth. We look forward to pursuing these opportunities and generating further value for REA shareholders.
Final thoughts on the REA Group share price
I’m not surprised REA shares are up more than 2% considering investors were worried about a large takeover, at an increasingly expensive price.
It still has lots of growth potential in places like India and the US, which is one of the key reasons that attracted me to invest in the business.
However, it certainly isn’t cheap – there are other ASX growth shares I’d rather invest in at this higher valuation.
