One of the biggest pieces of ASX news this week was the potential blockbuster takeover deal announced by ASX property share REA Group Ltd (ASX: REA) on Monday.
REA announced that it is considering acquiring the British property company Rightmove plc (LSE: RMV). At this point, this is all still a tad speculative. REA has not made an official offer for the company nor put a potential price tag on what it might be willing to pay for it. It hasn't reportedly even entered discussions with Rightmove.
As we covered at the time, REA has 28 days under British law to make a final offer for Rightmove. So we might have to wait until 30 September to find out if REA is even serious about the acquisition.
Investors have already made their options clear though. On the day this news came out, the REA share price plunged 5.3% and has since shed another 3.1%.
Meanwhile, Rightmove's London-listed stock has soared 19.8% over the same period. So it's clear who the markets think is getting the better end of the deal if there is indeed a deal.
Saying all that, we can make a few speculations here.
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A tale of two property stocks
If REA is indeed considering a full acquisition of Rightmove, it would be a blockbuster merger. REA currently has a market capitalisation of $26.56 billion, while Rightmove is being priced at 5.25 billion British Pounds ($10.25 billion). And if REA were to make a concrete offer for the company, it would likely come with an even higher price tag.
As such, a potential marriage could result in a ~$40-billion property behemoth on the ASX.
This property giant would represent the two largest property classifieds businesses across the United Kingdom and Australia under one roof. Comparing these two companies' financials directly is a little difficult since REA operates on a June-July financial year calendar, while Rightmove uses the traditional January-December format.
But even so, let's see what a combined company might look like.
What would supersized REA shares look like?
So over the 2023 calendar year, Rightmove reported revenues of 364.3 million pounds ($711.06 million), up 10% over the prior year. That resulted in an underlying profit of 264.6 million pounds ($516.46 million, up 8%).
In contrast, REA's recently filed earnings report for the 2024 financial year saw the ASX-listed stock reveal revenues of $1.45 billion, a 23% year-on-year increase. The company brought home $461 million in net profits.
As such, a combined entity could see a company with revenues of more than $2 billion and profits of close to $1 billion.
Interestingly, this comparison of both companies' profits highlights the valuation differences between the two. You'll notice that REA and Rightmove's profits are rather similar (although we are using slightly different metrics). The difference in valuation between the two companies is due to Rightmove trading on a price-to-earnings (P/E) ratio of 26.83, against a far more expensive 87.74 for REA.
We certainly have a mighty-large merger on our hands here. Let's see if it goes ahead.
