Third Point, DE Shaw obtain agreements with CoStar. How they can build value

Business: Costar group is an online real estate market supplier, information and analysis on the real estate markets. It manages its activities in two segments: North America, which includes the United States and Canada, and international, which mainly includes Europe, Asia-Pacific and Latin America. Its main brands include Costar, a world supplier of commercial real estate data, analyzes and news; Loopnet, a commercial real estate market; Apartments.com, a platform for apartment rental; and Homes.com, a residential real estate market.

Market value: 32.64 billion dollars ($ 77.39 per share)

Shaw property: n / A

Third -point property: 2.04%

Average cost: n / A

Commentary on the activist: De Shaw is a large multi-back-back fund that is not historically known for activism. The company is not an activist investor. Rather, it uses activism as an opportunistic tool in situations where the company judges it useful. Shaw is looking for solid companies in good industries and if it identifies the underperformances that are under management control, it will take an active role. It grants a premium to private and constructive commitment with management and, therefore, often reaches an agreement with the company before its position is even public.

The third point is a multi-surtegie hedge fund founded by Dan Loeb, which will selectively take the positions of the activists. Loeb is one of the real pioneers in the field of shareholders’ activism and one of the handfuls of activists who have shaped what has become the activism of modern shareholders. He invented the letter from the poison pen at a time when it was often necessary. As the times have changed, it has gone from the poison pen to the power of the argument. The third point had amicably a representation of the board of directors in companies like Baxter and Disney, but it will not hesitate to launch a fight against proxy if it is ignored.

On April 6Costar Group concluded support agreements with Shaw and the third point in connection with a refreshment of the board of directors and improvements in corporate governance. This includes the addition of Christine McCarthy, John Berishord and Rachel Glaser as administrators on the board of directors; The retreat of Michael Klein, Christopher Nassetta and Laura Kaplan of the Board of Directors. It also includes the appointment of Louise Sams as independent president of the board of directors and the creation of a capital allowance committee. From Shaw and Third Point agreed to comply with certain customary and voting provisions.

Costar Group is an online real estate market supplier, information and analyzes on the real estate markets. He manages the big brands, notably Costar Suite, Loopnet, Apartments.com and Homes.com. About 95% of the company’s revenues come from the basic company, which is largely made up from Costar Suite and Apartments.com, which benefit from high barriers to the entrance, high price power, proprietary data and commercial models based on subscription which stimulate recurring income and highly prevalent free cash flows. Due to these dynamics, this company has historically negotiated a bonus on its information services, but is now traded in accordance with them.

This regression in the assessment of the company derives largely from the aggressive investment of Costar in its residential market activity, Homes.com, in which it acquired May 2021. Unlike its basic companies Costar Suite and Apartment.com, Homes.com lacks competitive advantages and faces intense competition from well -established peers like Zillow. However, the company diverts around 75% of its $ 1.3 billion in profits before interest, taxes, depreciation and depreciation of its basic profession to finance the $ 900 million in Homes.com losses. Consequently, capital expenses increased from 878% from 2021 to 2024, marked by an increase of 347% in 2024 only.

Enter Shaw and Third Point that separated the support agreements with Costar in relation to A refreshment of the council and improvement of corporate governance. This includes the following: (i) the addition of Christine McCarthy (former CFO of Disney), John Berishord (former president of S&P Global) and Rachel Glaser (former director of Etsy) as directors; (ii) the retirement of President Michael Klein, Christopher Nassetta and Laura Kaplan of the Board of Directors; (iii) the appointment of Louise Sams as an independent president; and (iv) the creation of a capital allowance committee, which Berish and McCarthy will join. In activism, there are regulations that aim to appease an activist investor to keep them silent, and there are real regulations which mean a real agreement with the activist on the way of proceeding. This is the latter. First, the obvious indication is that three administrators have been replaced on a board of directors of eight people, which is a great refreshment (around 40% of the card). But less obvious and more revealing is the structure of the colony and which has been replaced. First, the agreement was structured to replace the administrators, not as the addition of three administrators, which is more common in the colonies, in particular those with relatively smaller councils (that is to say eight administrators for a company of $ 30 billion). Second, the three administrators who were replaced were three of the four longest administrators, excluding the CEO, and one of them was the president of the company since 1987. In addition, the new chairman of the board of directors is the second most recent director before the regulations. It is not only a refreshment of the card in the name, but also in substance.

There is also a more subtle provision of the regulations which, in our opinion, offer the most insight on the levers of the creation of value which can follow – the formation of a capital allowance committee, which will be made up of four administrators, two of whom will be the new directors of Shaw / Third Point. This is a clear situation of something that is often observed in militant campaigns – a main company that is extremely profitable but whose profits are used to finance a non -profitable non -profitable business. But the plan here is unlikely that Homes.com activities are completely, otherwise we would have seen a strategic transaction committee. This capital allowance committee will more likely be responsible for finding means to finance Homes.com activity without using the cash flows of the main company. This could include a spin-off of the company with a Costar retaining a certain property, a sale of part of the company to a strategic investor or by adopting third-party capital. The capital allowance committee is also responsible for assessing international expansion. Costar has already taken measures to develop internationally, including the acquisition of onthemarket.com in End of 2023One of the three most visited residential property portals in the United Kingdom. The company too recently offered To acquire Australian real estate classics, the Domain Holdings firm. The capital allowance committee will certainly assess this potential transaction as well as others and will make recommendations to the newly reconstructed council. In the end, the objective here is to emerge with the basic Costar company with international growth prospects evaluated on a multiple of its $ 1.3 billion coherent compared to the multiple of Ebitda which it historically received. This would lead to a business value of around $ 45 billion against about $ 30 billion today.

The third point and of Shaw are not purely activists, but multi-strategy companies that often use activism as an opportunistic tool. The third point, founded by Dan Loeb, is a real pioneer in shareholders’ activism, but has used it more with sparing in recent years, as dictated by the market environment and available opportunities. From Shaw is relatively new in activism, but the company has shown in recent years that it has been as competent in activism as in the other strategies with which it has been so successful in its multi-Strategia fund. While they both settled with the company in their own chords, the two are certainly sharing the same ideas, but not in groups. This is an encouraging development, and it is something that we often see today, but that we would rarely see 15 years ago: it puts the value of the shareholders above the ego. The third point revealed that he had a position of 2.04% in the Costar. From Shaw did not disclose his position, but as a hedge fund of $ 70 billion, he does not take small positions of activists: we would expect him to at least be the size of the third points.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholders’ activism, and the founder and portfolio manager of the Activist Fund 13D, a common investment fund that invests in a 13D activist investment portfolio.