Who are the Winners and Losers as REA Group Gives Up Pursuit of Rightmove Deal?

In an unsurprising move, the Rightmove Board rejected the unsolicited fourth acquisition offer from the REA Group this morning and earlier this afternoon, REA Group confirmed it was giving up its pursuit.

"The lack of meaningful engagement and the consistent lack of information provided by Rightmove impeded the ability to progress discussions and work together towards a recommended transaction, within the timetable permitted," REA said in a statement.

Rightmove's Board showed no interest in the offer or REA's approach, apparently refusing to engage with REA. Owen Wilson, REA Group's CEO, even urged Rightmove shareholders to pressure the Board to engage, but to no avail. As one fund manager I spoke to put it,

"The REA Board is starting to look a little silly in this process."

Why did they reject REA Group's offer? The consensus is that REA's share price is likely overvalued, affecting the share component of the offer. Additionally, the potential benefits of merging the two businesses were overly optimistic and unlikely to deliver significant synergies.

Today, REA finally gave up and walked away. So, after a month of headlines and speculation, who are the winners and losers here?

Winners

Rightmove Shareholders (with shares before 30 August) - These shareholders enjoyed a massive 30%+ uplift over the course of the month and, if they sold, are laughing all the way to the bank especially now that the shares are retreating towards GBP 6 (from a high of GBP 7.10).

Short Sellers - Anyone who shorted the Rightmove stock after the third bid rejection is making a great return now as the shares slide 8 per cent today.

Losers

The REA Board and Management - The REA Board has come out of this looking somewhat tarnished—four bids, four rejections, and no apparent backup plan for a hostile takeover. Perhaps they naively assumed the Rightmove Board would simply say "yes."

This also raises questions about the REA Board's perspective on their long-term growth options. Do they feel they are nearing a ceiling on revenue growth in their core Australian market? The company's statement said that it is "excited to pursue its many other avenues for growth" but perhaps needs to be clearer on exactly what those avenues are.

News Corp - News clearly wanted to use REA to acquire Rightmove while trying to retain control over the combined entity. They failed in this objective and are probably ruing not seriously pursuing the acquisition of Rightmove back in 2006.

Institutions - The institutions are the new shareholders. Once the bid was announced they bought the shares and played the game of “will they” or “won't they”.  If they bet that REA would be successful, they lost.

The Jury’s Out 

The Rightmove Board - The jury is out on this one. They rebuffed the REA Group’s unsolicited approach and have now drawn a line in the sand saying that they can drive strong growth in the business and deliver better shareholder returns than the GBP 7.70 REA was in theory offering (based on its current share price). This could be a tall order given CoStar’s stated aims in the UK market.

Simon Baker is the former CEO of REA Group and the founder of Online Marketplaces Group.