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Company: Costar Group Inc. (CSGP)
Business: Costar group is a provider of online real estate marketplaces, information and analyzes on the real estate markets. It manages its business in two segments: North America, including the United States and Canada as well as internationally, which mainly includes Europe, Asian-Pacific and Latin America. The main brands include Costar, a global provider of commercial real estate data, analyzes and news. Loopet, a commercial real estate market; Apartments.com, a platform for apartments; and homes.com, a residential property market.
Market value: USD 32.64 billion ($ 77.39 per share)
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Costar Group in the past 12 months
Activists: de Shaw and the third point
De Shaw owners: n/a
Third point possession: 2.04%
Average costs: n/a
Activist comment: De Shaw is a large multi-strategy fund that is historically not known for activism. The company is not an activist investor. Rather, it uses activism as an opportunistic tool in situations in which the company considers it useful. De Shaw is looking for solid companies in good industries and if it is an underperformance that is in the control of management, it will play an active role. It sets a bonus for private, constructive commitment to management and therefore often makes an agreement with the company before its position is even public.
The third point is a multi-strategy hedge fund founded by Dan Loeb and selectively take activist positions. Loeb is one of the real pioneers in the field of shareholder activism and one of the handful of activists who have shaped this into a modern shareholder activism. He invented the poison pencil letter at a time when it was often necessary. While the times have changed, he has passed the poison pencil to the power of the argument. The third point has fulfilled the board representative with companies such as Baxter and Disney, but it will not hesitate to start a proxy fight when it is ignored.
What happens
On April 6, the Costar Group completed in connection with a refreshment and improvement of the corporate governance improvements in support agreements with de Shaw and the third point. This includes the addition of Christine McCarthy, John Berisford and Rachel Glaser as directors of the board. The retirement by Michael Klein, Christopher Nassetta and Laura Kaplan from the board. It also includes the appointment of Louise Sams as an independent board chairman and the creation of a capital allocation committee. De Shaw and the third point agreed to comply with certain usual breastfeeding and voting rights provisions.
Behind the scenes
The Costar Group is a provider of online real estate marketplaces, information and analyzes on the real estate markets. It manages large brands such as Costar Suite, Loopet, Apartments.com and Homes.com. About 95% of the company's sales come from the core business, which largely consists of Costar Suite and Apartments.com, which benefit from high entry barriers, strong price power supply, proprietary data and subscription -based business models, the recurring income and highly predictable free cashflows. Due to this dynamic, this business historically acted with a premium to its colleagues for information services, but is now being traded with them.
This regression in the company's assessment is mainly based on the aggressive investments of Costar in the business for housing market business acquired in May 2021. Nevertheless, the company derives approximately 75% of the profits of 1.3 billion US dollars before interest, taxes, depreciation and amortization from its core business to finance the 900 million US dollars to Homes.com losses. As a result, the investment expenditure rose from 2021 by 878% and only marked 347% in 2024.
Enter de Shaw and the third point that have closed separately in support agreements with Costar in connection with a refreshment and improvement in corporate management. This includes the following: (i) The addition of Christine McCarthy (former CFO of Disney), John Berisford (former President of S&P Global) and Rachel Glaser (former CFO of ETSY) as directors; (II) The retirement of chairman Michael Klein, Christopher Nassetta and Laura Kaplan from the board; (III) The appointment of Louise Sams as an independent chairman; and (IV) the creation of a capital allocation committee, which Berisford and McCarthy will join. In activism there are settlements that are supposed to appease an activist investor to keep them calm, and there are real settlements that mean a real agreement with the activist about the procedure. This is the latter. First of all, the obvious indication that three directors have been replaced on an eight -person board, which is a great refreshment (approximately 40% of the board of directors). But less obvious and more meaningful is the structure of the settlement and which has been replaced. First, the deal was structured as a replacement by directors, not as an addition to three directors, which is more common in settlements, especially for relatively smaller committees (ie eight directors for a company of $ 30 billion). Second, the three replaced directors were three of the four directors distributed most, with the exception of the CEO, and one of them has been the company's chairman since 1987. In addition, the new chairman of the Board of Directors is the latest director in front of the settlement. This is not only a refreshment in the name of the name, but also in the substance.
There is also a more subtle provision of the settlement that we believe that it offers the greatest insight into the lever for value creation – the formation of a capital allocation committee that will consist of four directors, two of which 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 core business that is extremely profitable, whose profits are used to finance an unpredictable non-kernel business. However, the plan here is probably not fully sold the business with homes.com, or we have seen a strategic transaction committee. This capital assignment committee is more likely to be commissioned to find ways to finance the business with homes.com without using the cash flow from the core business. This could be a spin-off of the company that takes up a certain property, a sale of a business to a strategic investor or a capital of third-party providers. The capital allocation committee is also commissioned to assess international expansion. Costar has already taken steps to expand internationally, including the takeover of onthemarket.com at the end of 2023, one of the three most visited residential property portals in Great Britain. The company too Recently offered to acquire Australian real estate classification company Domain Holdings. The capital allocation committee will certainly evaluate this potential transaction and others and make recommendations to the newly reconstituted board. Ultimately, it is the goal of being created with the core business of the Costar business, whereby international growth prospects for a multiple of 1.3 billion US dollars are evaluated historically to the over 30 EBITDA -Multiple -Multiple -IT. This would lead to a company value of approximately 45 billion US dollars compared to today around 30 billion US dollars.
Both the third point and de Shaw are not pure activists, but multi-strategy companies that often use activism as opportunistic tools. Third place, which was founded by Dan Loeb, is a real pioneer in shareholder activism, but has used it more economically in recent years, as the market environment and the available opportunities dictate. De Shaw is relatively new to activism, but the company has shown in recent years that the other strategies in its multi-strategy fund was as successful in the other strategies. While they both settled with the company in their own agreements, the two are certainly like -minded, but not as a group. This is an encouraging development, and we often see ourselves today, but would rarely see 15 years ago: it represents the shareholder value over the ego. The third point announced that it has a position of 2.04% in the Costar. De Shaw has not disclosed his position, but as a 70 billion dollar -hedge fund he does not occupy any small activist positions: we would expect to be at least the size of the third points.
Ken Squire is the founder and president of 13D monitor, an institutional research service for shareholders, and the founder and portfolio manager of the 13D Activist Fund, an investment fund that invests in an activist 13D investment.