The REA Group Ltd (ASX: REA) share price is sinking deep into the red on Monday morning.
At the time of writing, the property listings company's shares are down 6.5% to $204.53.
Why is the REA Group share price sinking?
Investors have been hitting the sell button today in response to news that the company is looking at making a huge acquisition.
According to the release, the realestate.com.au operator has confirmed that it is considering a possible cash and share offer for London-listed Rightmove (LSE: RMV).
The release notes that REA has not approached, nor had any discussions with, Rightmove regarding any potential offer, but was forced to show its hand after its plans were leaked to the media.
The company's board believes that there are clear similarities between REA and Rightmove. It highlights their leading market positions in the core residential business, continued expansion and innovation of offerings across adjacent segments, leading audience shares, and strong brand awareness.
In addition, REA advised that it sees a transformational opportunity to apply its globally leading capabilities and expertise to enhance customer and consumer value across the combined portfolio and to create a global and diversified digital property company, with number one positions in Australia and the UK.
And while the REA share price performance today may say otherwise, the REA board believes the enlarged group would represent a highly attractive investment opportunity for sets of shareholders. This is because it would combine robust growth with strong margins and significant cash generation, enabling continued capital appreciation and shareholder returns.
For this reason, it "considers that a combination of the two businesses would provide a significant opportunity to unlock shareholder value."
What's this going to cost?
Firstly, it is worth highlighting that REA has warned that "there can be no certainty that an offer will be made, nor as to the terms on which any offer may be made."
As a result, "REA shareholders do not need to take any action at this time."
Based on UK takeover rules, REA has 28 days to announce a firm intention to make an offer for Rightmove or announce that it does not intend to make an offer. This means that it has until 30 September to make its move.
And while the company has not provided any confirmation of how much it would be willing to pay for Rightmove, it would undoubtedly be a significant sum.
On Friday, Rightmove shares closed at 557.37 British pence. This gave it a market capitalisation of GBP4.4 billion or approximately A$8.5 billion.
If we were to imagine that REA's potential offer is a 30% premium to its prevailing share price, this would imply an offer in the region of A$11 billion. This compares to REA's current market capitalisation of approximately A$28 billion.
