"I don't think REA has GBP 5.6 billion lying around in cash." If...

"I don't think REA has GBP 5.6 billion lying around in cash."

If the shareholders of the target are happy to accept REA scrip (and that's no gimme), REA will only need GBP 2.4bn (so ~A$4.7bn) of cash.

REA carries no net debt currently.

The combined business will have EBITDA of around $1.35bn, so gearing up to say, 3x Net Debt-to-EBITDA will allow for the taking on of some $4.1bn in borrowings, i..e, a shortfall of just $700m which, in the context of a $26.5bn market cap, is not much at all if an equity top up is going to be required.

Of course, they could back themselves and take the gearing up to 3.5x Net Debt-to-EBITDA [*], in which case that would cover them without requiring recourse to shareholders.

So, the way it is structured, funding the transaction is a piece of cake (the key thing is that the target company shareholders are happy to hold REA paper which, as I noted, is not something on which I'd bank).

Rather, the issue is how this deal creates long-term value for REA shareholders. And on that score, I'm uncertain.

[*] It's a capital-light business model, with few contingent calls on capital, so 3.5x is manageable and the balance sheet would soon repair itself.