It’s not quite the 2005 Ashes, but well played, the board of Rightmove. REA Group, the would-be bidder majority-owned by Rupert Murdoch’s NewsCorp, is slinking back to Melbourne with its tail between its legs. A retreat wasn’t the way to bet on day one, but humiliation for the Murdoch vision of creating a multi-hemisphere property portal can be explained easily: REA never offered a decent price. Rightmove was within its rights to say no four times, even to £6.2bn.
That is the context in which to view REA’s sour grumbles about a lack of “meaningful” engagement from the target’s board. What the Australian group ignores is that a defending company is not obliged to open its books to a possible future competitor unless the offer is in whiz-bang territory.
REA never came close with its irritating tactic of adding a few pennies to an inadequate bid and pretending it was pushing the limits of generosity. The last cash-and-shares offer landed at about 780p, which might look pretty against a pre-action Rightmove share price of 555p but the stock market vibe always suggested “the killing zone”, in investment bankers’ lovely parlance, lay above 800p – and perhaps some distance above.
Yes, Rightmove’s shares have been becalmed for a couple of years, but an 85% share of its market plus stupendous profit margins of 70% make it a rare stock market creature. If its board thinks a standalone strategy (in this case involving expansion into mortgage-broking and commercial property) will produce better value within a reasonable timeframe, that judgment is legitimate. And, given what Rightmove has achieved since launch in 2000, such optimism is not obviously silly.
REA’s biggest problem was that every time it tweaked its terms its own share price fell. That undermined the appeal of a pitch in which more than half the currency was REA shares. Momentum in the market was never generated. If REA’s non-Murdoch investors were not enthused, why should Rightmove’s shareholders be bowled over by the prospect of taking equity in a company in which News Corp would still have had a near-50% stake?
The writing was on the wall when REA appealed for Rightmove’s investors to rise in rebellion and pressure their directors to start negotiating. The effort fell laughably flat. One fund manager, Axa Investment Managers, played along, but it was in the third tier of shareholders, stake-wise, and the other members of the rebel alliance were mostly even smaller or Australian, or both. The big UK guns on Rightmove’s register – the likes of Baillie Gifford and Lindsell Train – either stayed silent or were commendably supportive of their board.
This is a tale of one bid and one company, so perhaps one shouldn’t draw wider conclusions. But it makes a pleasant change to see a FTSE 100 company defend itself successfully against a predator that, on paper, started as favourite. If that suggests an outbreak of long-termism in fund manager-land, or just an appreciation that there are pockets of the UK market that are undervalued by international yardsticks, so much the better.
Maybe the moral is the simpler one: REA misjudged the mood, and how its own share price would react, and didn’t have sufficient cash resources to sweeten its terms meaningfully. News Corp chief executive Robert Thomson dressed up the failure as a case of a bidder displaying “financial discipline”, but that is just another way of admitting you couldn’t afford what you wanted.
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It is true, as Thomson also said, that his boss’s son, Lachlan Murdoch, made a “savvy investment” in REA many moons ago and that the Australian property company has become a successful non-media component of News Corp. But you launch £6bn bids to win; the Rightmove expedition was not savvy. The UK company still has to prove it can get to 780p under its own steam, but the right side won this scrap.