REA move on Rightmove—PE arbitrage

The numbers disclosed tell an interesting story.

Current REA metrics at June 2024

NPAT $461m

SOI 132m

EPS $3.49

Last RGHTM metrics

NPAT L200m

SOI 789m

EPS 25p

The offer is each RGHTM share gets 0.0381 REA shares plus 305p per share. Total cost A$11B split 43% cash $4.8B and 57% equity $6.2B. ie 30m shares at $205ps (rounding)

COMBINED GROUP IF THE OFFER ACCEPTED—19% increase in SOI

NPAT REA A$461m plus RGHT A$392m (1.96 fx) less cost of debt $202m assumed 6% or 4.2% a/t on the $4.8b. NPAT 462+392-202=652 divide SOI 132+30=162= $4.02 (accretive 15%)

CHECK IF ALL equity offer (to assess if debt helps)

$11b divided by $205 = 54m new shares

NPAT $462m +A$392m (no debt)= $853m / 186m shares $4.58 (31% accretive)

If my numbers are correct (there is always a chance I've stuffed up) (very) unusually, the debt funding gives a lower accretion. The numbers highlight that there is a large PE differential between REA and RGHTM that is giving REA a lot of leeway in pricing this deal. That is good.

Of course, if REA are buying into a disaster or diluting their franchise (probably yes) that is the main game, also RGHTM management would be fully aware of these numbers and will want to adjust the arbitrage advantage through a higher bid price. Im a bit sceptical on this deal but the PE difference is giving them headroom

Hold REA --large