REA's new takeover offer for Rightmove dilutes News Corp's holdings: analyst
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More news: REA’s improved takeover bid for Rightmove will dilute News Corp’s holding in the combined entity to 49%, according to E&P Capital analysts.
E&P analyst Entcho Raykovski noted that the increased cash component would be funded by debt and the increased scrip component would dilute News Corp’s holding.
He also pointed out that REA said it expected to target a leverage ratio of three times within 18 months post completion of the transaction.
Raykovski said the increased offer was “clearly aimed at bringing the Rightmove Board to the negotiating table” after REA said it was disappointed by the lack of engagement.
What they said: “We estimate that if the transaction was to proceed on the terms announced this morning, REA would see pro-forma earnings per share [EPS] accretion of [around] 8% in FY25/FY26 — the lower EPS accretion relative to our prior estimates is driven by higher debt, with REA choosing to fund the cash component via increased debt rather than raising equity,” he said.
“While we are somewhat surprised that under these parameters News Corp would be diluted to a holding of under 50% in the combined entity, NWS will still likely still have effective control (which may explain the latest offer metrics).”
REA Group shares fall on improved Rightmove bid
More news: Shares in REA Group lowered on the ASX after the News Corp-controlled real estate platform confirmed that it made an improved takeover offer for London-listed property website Rightmove.
REA shares fell 1.6% to $195.77 by 12:40pm AEST, having added nearly 25% over the last 12 months.
REA lifts takeover bid for Rightmove to $11.9 billion
More news: REA has confirmed that it made an improved offer value of 770 pence for each Rightmove share, approximately £6.1 billion ($11.9 billion).
REA also said that there had been a lack of engagement by Rightmove’s board.
Under the enhanced offer, Rightmove shareholders would hold about 20% of the combined group.
What they said: REA chief executive Owen Wilson said: “We live in a world of intensifdying competition and this proposed transaction would bring together two highly complementary digital property businesses for investment and growth”.
“... We are genuinely disappointment at the lack of engagement by Rightmove’s board and we strongly encourage the Rightmove board to engage”.
REA needs capital raise to fund any improved offer for Rightmove: E&P
The news: Any higher takeover bid for Rightmove by News Corp’s REA increases the likelihood that REA will look to raise equity capital to fund the enhanced offer, according to analysts as reports over the weekend said REA had made a higher offer.
The numbers: REA has reportedly enhanced its takeover bid for the UK company to £5.9 billion ($11.54 billion), up from £5.6 billion, according to Bloomberg and the FT.
Analysts at E&P Capital said the higher offer at 750 pence per Rightmove share equated to around a 35% premium to Rightmove’s undisturbed share price.
They said the 35% premium would result in a 12% to 13% pro-forma earnings per share accretion to REA in FY25/26.
At this premium, the analysts estimated that around a $720 million equity raising would be required to ensure News Corp was not diluted below a 50% shareholding and the leverage ratio for the merged entity did not increase about three times.
The context: However, Bloomberg also reported over the weekend that Rightmove had rejected the improved offer, according to people familiar with the matter.
The sources: E&P Capital research, Bloomberg, Financial Times
