REA Group Ltd (REA) $192.39

By yesterday’s close, REA had corrected over 14% from its August high following its bid for the UK’s Rightmove (RMV LN). Overnight, we heard that RMV had rejected the third takeover bid from REA, which valued the UK property giant at ~$8.2bn. The clock is ticking, and RMV’s wording wasn’t encouraging,

• The board “concluded that the increased proposal continues to be unattractive and materially undervalues the company and its future prospects,” and “Accordingly, the board unanimously rejected”.

However, REA’s third bid pushed some shareholders to encourage talks to commence after they expressed frustration at RMV’s refusal to discuss a deal following its two previous proposals. If we were REA, it would be “best and final time,” with RMV likely to fall 15-20% if the Australian suitor walks. REA Group said it’s frustrated that it still has had no substantive engagement with Rightmove, and if they cannot get to the table soon, the takeover premium will likely dissipate from RMV’s stock.

• We are fans of REA’s move on RMV, but not at any price because there are always risks associated with M&A and forays into overseas lands.
• The risk/reward in the $180-190 region is attractive whether the deal is cemented or eventually fails.