Rightmove Rejects Third Offer REA - Portfolio Change?
REA has made three proposals in order to acquire Rightmove. All three proposals were rejected by the board of Rightmove stating the offer materially undervalues the company.
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Earlier this year I have bought Rightmove and according to my deep dive written in March of this year, the annual expected return I expected at 13% per year.
My purchase price has been 5.20 and today we are around 6.77 which means 30% higher in just six months.
REA has tried to acquire Rightmove with three offers and I completely understand why they are trying to acquire Rightmove, however REA is always quite strict in valuation and what they are willing to pay. After Rightmove classified their latest offer as “unattractive” and undervaluying their business.
REA is frustrated after Rightmove rejected their third offer and didnt even want to engage with REA over the offer. REA now asked shareholders to consider their third offer, which is a step towards a hostile takeover.
Most often hostile takeover don’t succeed (~65% is unsuccessful) and I expect shareholders will see the long-term value of the company and hence not considering the REA offer. The REA offer is around 12% above todays price.
So now there is the question what to do with my position. Holding on long-term with the risk short-term we will fall back below 6.00 or locking in the 30% profit in just six months?
It is a difficult question. I love the moat of the company, their high margins and their share buyback program and the UK market hasn’t been that good for Rightmove since interest rates went higher. And that seems to be just changing.
One of my most important rules is to hold on for the long-run and don’t go for short-term gains. So I will stick to that. I didn’t buy Rightmove to sell it in 6 months. I have bought it to keep for 10 years. My case presented in the deep dive of March is still valid and here are the highlights of that article:
Rightmove is mentioned as a wide moat company by Morgan Stanley and UK population ranks Rightmove as the number 1 property platform
Rightmove hardly needs cash to run their business
Net income margin >50% and expected growth coming years of 10.5% revenue CAGR
High shareholder returns due to high free cash flow
Competitor OnTheMarket acquired by CoStar is a low risk given the strong moat of Rightmove
Clear strategy communicated in November 2023 and line of sight towards growth
Risk framework in place to monitor and mitigate potential risks, however Rightmove is dependent on the UK macroeconomy
At the current share price I expect a yearly return of 13.5% for the next 5 years, considering a PE of 20, which is at the lowest level since last 10 years.
Wish all shareholders luck in making the decision that suits you and your time horizon best.
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We will all see a higher bid at around 800p. Otherwise we will own great company and we will pass the 800p somewhat later.