REA Group Limited (ASX: REA), the owner of realestate.com.au, is set to buy all the shares in iProperty Group Ltd (ASX: IPP) that it does not already own.
In an announcement to the ASX this morning, the $6.3 billion REA Group said it had agreed to a scheme of arrangement that will see iProperty shareholders given the choice to receive $4 cash, or $1.20 cash and 0.7 shares in an unlisted entity with an indirect interest in iProperty.
The "mixed alternative" of $1.20 cash and shares simply gives shareholders an, "an indirect ongoing interest in IPP until no later than the first half of calendar year 2018," iProperty said.
The $4 offer represents a 20% premium to the one-month value weighted average price (VWAP) of iProperty shares to 30 October 2015 and a 29.4% premium to the three-month VWAP.
"After careful consideration of all options available to maximise shareholder value, the Non-REA Directors have unanimously concluded that the Proposal is on terms which we believe reflect compelling value and are in the best interests of all shareholders," iProperty Chairman, Patrick Grove, said. "IPP and REA are highly complementary businesses and there is strong strategic rationale underpinning a combination."
In an investor presentation, REA said iProperty's leading real estate portals in Malaysia, Hong Kong, Thailand and Indonesia were appealing assets with long-term industry tailwinds. "South East Asia is underpinned by highly attractive macroeconomic factors with strong growth prevalent across the region," REA said.
REA will fund the $580 million acquisition from $480 million of new debt and cash. The deal represents a hefty enterprise value to revenue multiple of 28.7x. However, undoubtedly, iProperty bulls will say its growth outlook warrants such a high valuation.
Foolish Takeaway
Given the expected synergies and growth potential, REA Group's acquisition makes perfect sense. However, given it has been a large shareholder of iProperty for some time I think a question that needs to be asked is: Why did REA Group wait so long?
If it had acquired iProperty one, two or five years ago it would've saved shareholders hundreds of millions of dollars. Holding off buying the business may have been the 'lower risk' option at the time, but ironically it's proved to be far more costly.
Nevertheless, in my opinion an iProperty-REA Group tie-up makes a lot of sense over the long term.
