Murdoch Faces Pressure To Boost Rightmove Bid After £5.6bn Offer Rejected

Rupert Murdoch’s REA Group is under increasing pressure to raise its offer for Rightmove, the UK-based online property giant, after its £5.6bn bid was rejected. The proposed takeover, branded “opportunistic” by Rightmove’s board, offered a 27% premium on the company’s share price.

The Australian real estate firm, owned by Murdoch’s News Corp, put forward a cash and share offer worth 705p per share last week. However, Rightmove swiftly turned it down, stating it significantly undervalued the company and its future potential. In a statement, the board declared that the bid was not in the best interests of shareholders, noting that the offer did not reflect the company’s market-leading position and long-term prospects.

Sanford DeLand Asset Management, which holds 2.5 million Rightmove shares, supported the board’s decision. They criticised REA’s offer, questioning the quality of the Australian firm. “REA isn’t a company we’re familiar with, but it’s clear that it doesn’t match Rightmove’s calibre. Why would we accept an offer that swaps 100% of the best UK-listed business for a mix of cash and shares in something inferior?”

City analysts agree that Murdoch will need to come back with a much higher bid to secure the deal. Some estimate that REA would need to pay over £7bn to make it a serious proposition. Sean Kealy, an analyst at Panmure Liberum, said the 27% premium is far too low. “Rightmove’s board has done the right thing rejecting the offer. To be successful, Murdoch would need to offer at least a 60% premium, which values Rightmove at more than £7bn.”

The bid comes as the Murdoch family looks to shift away from its traditional media roots. Rupert Murdoch, now 93, is gradually passing control of his business empire to his eldest son, Lachlan. The acquisition of Rightmove would help diversify News Corp’s portfolio, adding a dominant player in the online property market to its stable.

REA’s bid is also seen as an attempt to take advantage of Rightmove’s current valuation, which has dipped due to a wider property market slowdown. Rightmove, which commands an 86% market share in the UK, has been impacted by high mortgage rates, discouraging many potential buyers. However, analysts believe the market will recover as interest rates begin to fall.

Melbourne-based REA, which owns property sites such as realestate.com in Australia, currently has a market value of around £13bn. It believes its offer represents fair value, noting that it is in line with similar deals in the real estate sector. REA’s proposal is based on a valuation multiple of 20.5 times Rightmove’s earnings, compared to an industry average of 21.5 times.

REA has until 30th September to make a firm offer or withdraw, as per City takeover rules. If successful, the deal would see Rightmove shareholders holding approximately 18.6% of the merged company. Shareholders would also remain entitled to Rightmove’s interim dividend of 3.7p per share.

Despite REA’s confidence, doubts persist over whether the bid will succeed. Rightmove’s stock surged 25% after news of the offer broke, but analysts say Murdoch will need to offer significantly more to win over sceptical shareholders. 

REA has said the cash element of the deal will be funded by a combination of debt and existing reserves. The Australian firm is also planning a secondary listing in London, which it believes will attract a broader range of investors.

Rightmove, which has long dominated the UK property portal market, is not without challenges. It faces growing competition from CoStar, which bought rival OnTheMarket last year for £99m. Analysts believe REA could expand Rightmove’s services into areas like mortgage broking and data analytics, where it could build on the technology it already uses in Australia, including AI tools recently deployed on its realestate.com platform.

News Corp has also been attempting to offload its US real estate business, Move Inc, but talks reportedly fell through over a $3bn price tag. This has sparked calls from activist investor Starboard Value for the Murdoch family to spin off REA, a proposal that has intensified in recent weeks. Starboard has demanded changes to the Murdoch family’s control of News Corp, adding to tensions within the Murdoch clan. As Rupert Murdoch seeks to change the structure of his family trust to hand control to Lachlan, other members of the family are challenging the move, setting the stage for a legal battle in the US.

Murdoch's latest attempt to diversify his media empire by moving into property may depend on how much more he is willing to offer for Rightmove. For now, shareholders and analysts seem united in their belief that the bid falls far short of the company’s true value.