What: According to a report in the Australian Financial Review (AFR) broker Morgan Stanley has outlined the potential for media giant News Corp (ASX: NWS) to acquire the roughly 40% of leading online real estate classifieds business REA Group Limited (ASX: REA) that it doesn't own.
So What: Amongst the reasons why Rupert Murdoch's News Corp could be interested in acquiring the remaining shares in REA Group is because of the increased buying power of the US dollar thanks to a falling Australian dollar exchange rate.
Consider this, at today's share price, News Corp would need around $2.4 billion to sweep up the stock in REA that it doesn't already own. Just one year ago that would have required about US$2.3 billion. However, at current exchange rates the firm would only require about US$1.75 billion – that's a substantial saving!
In other words, from News Corp's stand point of purchasing REA using US dollars, the investment is significantly more appealing today than it was just 12 short months ago.
Now What: Looking out to financial year 2017 and the consensus forecast for earnings per share (according to data supplied by Morningstar) is 205 cents per share. With REA's shares currently trading at $45.89 this implies a forward price-to-earnings ratio of 22.4x. That doesn't appear an excessive multiple considering the quality of REA's brands and the medium term growth outlook. Perhaps of equal importance, it probably isn't a price that would deter Murdoch!
