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Company: Costar Group Inc. (CSGP)
Business: Costar group is a supplier of online real estate markets, information and analyzes on real estate markets. He manages activities in two segments: North America, which includes the United States and Canada and international, which include primarily Europe, Asia and the Pacific and Latin America. His main brands include Costar, a global supplier of data on commercial real estate, analytics and messages; Loopnet, commercial real estate market; Apartments.com, platform for apartment rental; and Homes.com, housing real estate market.
Stock: USD 32.64 billion (USD 77.39 per share)
Costar Group in the last 12 months
Activists: De Shaw and the third point
Property de shaw: Not applicable
Ownership of the third point: 2.04%
Average cost: Not applicable
Comment of activists: De Shaw is a large multi-strategic fund that is not historically known for activism. The company is not an investor activist. Rather, it uses activism as an opportunistic tool in situations where the company considers it useful. De Shaw is looking for solid companies in good industries, and if he identifies worse results that are under the control of management, he will have an active role. He imposes a contribution to private, constructive commitment to management, as a result of which a contract with the company often comes to the contract before its position is public.
The third point is a multi-strategic hedge fund founded by Dan Loeb, which selectively occupies the positions of activists. Loeb is one of the real pioneers in the field of shareholders 'activism and one of the handfuls of activists who shaped what has become contemporary activists' activism. He invented a letter of poisonous feathers at a time when it was often necessary. As the times changed, he passed from the poisonous feather by force of the argument. The third point amicably received a representation of the board in companies such as Baxter and Disney, but he would not hesitate to start a replacement fight if it is ignored.
What's going on
ON April 6The Costar Group concluded support agreements with De Shaw and the third point in connection with the improvements of refreshment of the management board and corporate charges. This includes the addition of Christine McCarthy, John Berisford and Rachel Glaser as directors of the board; Retirement of Michael Klein, Christopher Nassetta and Laura Kaplan from the board. This also includes the appointment of Louise Sams as an independent chairman of the board and the creation of a capital allocation committee. De Shaw and the third point agreed to follow some customary resolutions and voting.
Behind the scenes
Costar Group is a supplier of online real estate, information and analytical markets on real estate markets. He manages the main brands, including Costar Suite, Loopnet, Apartments.com and Homes.com. About 95% of the company's revenues comes from the basic business, which largely consists of Costar Suite and Apartments.com, which use high barriers in the entry, strong price power, reserved data and business models based on subscriptions, which drive recurrent revenues and highly predictable free cash flows. Because of this dynamics, this activity was historically exchanged with the bonus for her information services, but now he is trading with them.
This regression in the company's valuation largely results from the aggressive Costar investments in its residential market, Homes.com, in which he purchased May 2021. Unlike the main companies, Costar Suite and Apartment.com, Homes.com has no clear competitive benefits and faces intensive competition from well -established peers such as Zillow. Nevertheless, the company reverses about 75% from $ 1.3 billion in profits from interest, taxes, depreciation and depreciation from the basic activity to finance $ 900 million losses from homes.com. As a result, investment outlays increased by 878% compared to 2021 to 2024, which means an increase of 347% in 2024 alone.
Enter de shaw and the third point, which separately concluded support agreements with Costar in connection with Refreshing the disc and improvement of corporate order. This includes: (i) the addition of Christine McCarthy (former financial director of Disney), John Berisford (former president of S&P Global) and Rachel Glaser (former financial director of the Etsy) as directors; (ii) withdrawal of chairman Michael Klein, Christopher Nassetta and Laura Kaplan from the board; (iii) appointment of Louise Sams as an independent chairman; and (IV) the creation of a capital allocation committee in which Berisford and McCarthy will join. In activism, there are settlements that are intended to calm the activist to keep them quietly, and there are real settlements that mean true compliance with the activist in the field of conduct. This one is the latter. First of all, the obvious indication is that three directors have been replaced on an eight -person board, which is a great refreshment (about 40% of the board). But less obvious and more eloquent is the structure of the settlement and has been replaced. First of all, the contract has been structured as a replacement of directors, not adding three directors, which is more common in settlements, especially with relatively smaller boards (i.e. eight directors of the company worth $ 30 billion). Secondly, three directors who were replaced were three of the four directors, excluding the general director, and one of them was the chairman of the company since 1987. In addition, the new chairman of the board is the second latest director before the settlement. This is not only refreshing the disc by name, but also in the substance.
There is also a more subtle settlement decision, which in our opinion offers the greatest insight into what levers to create values may occur – the creation of a capital allocation committee, which will consist of four directors, two of whom will be the new directors of de shaw/third point. This is a clear situation of something that can often be seen in activist campaigns-a basic business that is extremely profitable, but whose profits are used to finance unprofitable unprofitable business. But the plan here probably does not integrate the activities of Homes.com, otherwise we would see the Strategic Committee for Strategic Transactions. This Capital Allocation Committee will be more likely to find methods of financing Homes.com without using cash flows from the basic activity. This may include the company's spinoff with the maintenance of Costar, selling part of the business to a strategic investor or taking external capital. The Committee for the Capital Allocation is also intended to assess international expansion. Costar has already made movements to develop internationally, including the acquisition of onthemarket.com in At the end of 2023One of the three most visited residential real estate portals in Great Britain. Company also recently offered To buy Australian real estate real estate from Domena Holdings. The Committee for the Capital Allocation will certainly assess this potential transaction, as well as others and will issue recommendations to the newly reproduced council. Ultimately, the goal here is the appearance of the basic activity of Costar, and international growth prospects are valued at a multiple of $ 1.3 billion in accordance with the multiple of EBITDA, which he received historically. This would cause approximately $ 45 billion in the value of the enterprise compared to around $ 30 billion.
Both the third point and de shaw are not purely activists, but companies with many strategy that often use activism as an opportunistic tool. The third point, founded by Dan Loeb, is a real pioneer of shareholders' activism, but in recent years he has used it more sparingly as dictated by a market environment and available possibilities. De Shaw is relatively new in activism, but the company has shown over the past few years that it has been as expert in activism as on other strategies with which it is successful in a multi -meter fund. While they both settled with the company in their own contracts, both are certainly similar, but they do not act as a group. This is encouraging development and it is something that we often see today, but we rarely see 15 years ago: it puts the value of the shareholder over the ego. The third point revealed that it has 2.04% position in Costar. De Shaw did not reveal his position, but as a $ 70 billion hedge fund, he does not take a small position of activists: we would expect that it will be at least the size of the third point.
Ken Squire is the founder and president of the 13D monitor, institutional research service for shareholders activists and the founder and head of the 13D Activist Fund portfolio, an investment fund that invests in the portfolio of 13D activists.