Murdoch’s Rightmove bid: A step up the ladder or a misstep in the making?

REA Group, the Australian property firm largely controlled by Rupert Murdoch’s News Corp, is considering a £4.4 billion takeover bid for Rightmove, the leading British property website. Eldest son Lachlan, who took over the running of News Corp from his father last year, is aiming to further diversify News Corp, while making his mark on the business.  

But is this really the right move for the two companies, or is it simply a risky venture into uncertain territory? Rightmove, which commands 86% of the UK market share, saw its shares soar by 25% on the news - the largest intraday jump on record, while REA’s stock fell by nearly 10%, reflecting investor unease.

If a formal offer arrives, Rightmove’s shareholders will have to ask whether they are selling out at the right time. Despite being the dominant player in its market by a considerable margin, its current valuation remains well below its 2021 peak, even with the potential 30% premium offered in the deal.

However, the property website, does face mounting pressure from growing competition, particularly from US property giant CoStar, which acquired rival UK property portal OnTheMarket for £99 million last year.

For the Murdoch family, it seems like this takeover bid isn’t just about diversification – it is also about countering this emerging threat. The potential takeover from REA could provide Rightmove with the necessary capital and strategic direction to fend off CoStar’s challenge, ensuring that it maintains its leading position in the UK’s online property market.

However, for some investors, the strategic rationale behind the deal may still be unclear. REA Group operates predominantly in Australia and Asia, regions with very different market dynamics compared to the UK.

Moreover, Rightmove’s future prospects most definitely aren’t bleak on its own. The company is expanding into new areas such as mortgages and commercial property listings, with revenue growth expected to accelerate in the coming years. If Rightmove stays on course, it could potentially reach a valuation close to £5.5 billion by 2027, supporting the question of why should shareholders accept a modest premium now when the company might deliver greater returns independently?

For the Murdoch family, this move seems like an attempt to diversify away from traditional media into digital real estate. However, the concerning reaction from the market suggests this could be more about appearances than substance. The Murdochs have attempted ambitious moves before, such as the ill-fated merger between News Corp and Fox, which fell apart due to shareholder resistance.

This potential acquisition could face similar hurdles. Rightmove is a solid business, but it is not clear that it fits neatly into REA’s existing portfolio. With questionable strategic benefits and a sceptical market, one has to wonder if this deal is driven by a desire to make headlines rather than sound business logic.

With considerable risks and uncertain synergies, this deal could either cement Murdoch’s reputation as a forward-thinking leader or reveal the pitfalls of an overambitious strategy.

Rightmove’s shareholders now face a crucial decision: is this the right time to cash out, or do the company’s best days still lie ahead?