After Rightmove PLC (LSE:RMV) shares jumped 20% on the confirmation from Australia's REA Group (ASX:REA) that it was considering a bid, analysts said the situation could get "messy".
Aussie-listed REA Group, which is 61%-owned by Rupert Murdoch's NewsCorp, said in a statement it has yet to approach Rightmove, though it is mulling an offer made up of cash and shares.
Analyst Sean Kealy at Panmure Liberum said a "leak looks to have forced this into the open before much progress had been made at all".
"This could create a messy situation", he said, especially given levels of short-selling of Rightmove shares and REA's statement that the offer would be partially in shares, "meaning we'd expect a large equity placing to fund any cash component too".
REA, which has until the end of September to make a formal offer, is Australia’s largest property listing company as Rightmove is in the UK.
This mean, said Jessica Pok at Peel Hunt, the pair is the most closely compared property portals, given the similarities of the UK and Australian property markets.
Rightmove's shares have been trading for 19 times forecast earnings and 14x on a EV/EBITDA basis, making it "one of the cheapest classifieds businesses in Europe, despite its prospects", Pok said, as European peers trade on an average multiple of 19x EV/EBITDA and 33x p/e.
"It does not come as a surprise to us today that Rightmove has become an acquisition target, given the rating has been subdued for some time due to the negative sentiment on the UK housing market and concerns over competitive threats from CoStar/OnTheMarket," she added.
Kealy said "a large premium" to Rightmove's current share price would be expected, also noting that there has been lots of M&A in the classifieds sector recently, with Cinven buying Spain's Idealista and EQT taking private Singapore's Property Guru.
Roddy Davidson at Shore Capital pointed out that REA’s stock is trading on a p/e ratio of almost 50x.
As for Rightmove, he said "we believe the group’s is now in a more challenging phase with regard to the ease with which it can develop new revenue opportunities and achieve price inflation".
He added: "We await further developments around this unexpected announcement but, on a first pass basis, retain an open mind regarding the potential benefit for Rightmove (which remains UK focused) shareholders of becoming part of a bigger international group which appears to have strong momentum and has delivered a strong share price performance over the last 12 months."