All-Stock Merger Proposal Represents a 20%
Improvement to the Value of CoreLogic’s Pending Transaction
Combination of CoStar Group and CoreLogic
Expected to Deliver $150 - $250 Million in Annual Run-Rate Adjusted
EBITDA Synergies Within Three to Four Years, Delivering Superior
Value to CoreLogic Shareholders
Transaction Is Expected to Be Highly Accretive
to Adjusted EPS by Approximately 30 Percent in Year One Before
Synergies
Today, CoStar Group, Inc. (NASDAQ: CSGP) delivered a letter to
the Board of Directors of CoreLogic (NYSE: CLGX) setting forth the
terms of a superior proposal by CoStar Group to acquire 100% of the
equity interests of CoreLogic. Under the terms of the proposal,
CoreLogic shareholders would receive 0.1019 shares of CoStar Group
common stock in exchange for each share of CoreLogic common stock,
representing a value of approximately $95.76 per share based on
CoStar Group’s closing share price on February 12, 2021. CoStar’s
proposal represents 16.2% pro forma diluted ownership for CoreLogic
shareholders in the combined entity, and a $15.76 per share
improvement to the value of CoreLogic’s pending transaction as of
February 12, 2021.
The following is a copy of the letter that CoStar Group
delivered to the Board of Directors of CoreLogic on February 16,
2021:
Dear CoreLogic Board Members:
Given our substantial engagement since early
December, we were stunned to read about the acquisition of
CoreLogic by Stone Point Capital and Insight Partners on February
4, 2021 (the “Pending Transaction”). Their cash bid of $80 per
share was materially less than our last all-stock offer, which had
a headline value of $86.30 per share. The decision to accept the
lower $80 per share bid from a sponsor instead indicates a failure
to appropriately value the synergies of our proposal as a strategic
bidder.
We do not believe the Pending Transaction
maximizes value for CoreLogic stockholders and we continue to
believe in the strong strategic rationale for the combination of
our two companies. We hereby submit this “Competing Proposal” that
will provide superior value to CoreLogic’s stockholders. The fact
that CoreLogic stock continues to trade well above the Pending
Transaction price is a clear indication that the shareholders agree
with us. Accordingly, we propose moving forward with an acquisition
of CoreLogic that will provide value directly to CoreLogic’s
stockholders that is substantially superior to the value they would
receive in the Pending Transaction.
Terms of our Proposal
We propose a merger transaction whereby
CoStar would acquire 100% of the equity interests of CoreLogic for
consideration of $95.76 per share based on the latest CoStar
closing price. The consideration would be delivered in 0.1019
shares of newly issued CoStar common stock for each share of
CoreLogic’s issued and outstanding common stock (the “Proposal”).
This implies a headline value of $92 per share based on the latest
30-day volume-weighted average CoStar share price. This represents
an equity value of approximately $6.9 billion and a premium of 74%
to CoreLogic’s unaffected share price on June 25, 2020. This offer
represents a $15.76 per share improvement over the Pending
Transaction. Based upon Friday’s close at $81.99 ($1.99 above the
Pending Transaction), our Proposal delivers to CoreLogic
stockholders over $1 billion more in value than the Pending
Transaction. The Pending Transaction represents a 2.4% discount to
Friday’s close, while our offer represents a 17% premium to
Friday’s close.
At the heart of our Proposal is a value
proposition for the direct benefit of the CoreLogic stockholders
that greatly exceeds the Pending Transaction. The Proposal implies
pro forma diluted ownership of approximately 16.2% in the combined
entity for current CoreLogic stockholders. CoStar Group’s offer is
clearly the superior offer to CoreLogic’s shareholders in immediate
value, but we believe that with hundreds of millions of dollars of
synergies, the implied ownership of the Proposal provides
substantial value upside, which we believe would deliver value in
excess of $105 per share to CoreLogic stockholders over time.
CoStar Group’s stock is a solid currency and
has performed exceptionally well through decades, driven by solid
fundamentals such as our compound annual revenue growth of 21% over
the past 20 years, 21% over 10 years, and 19% over 5 years. With
consistent growth and a huge addressable market, CoStar Group’s
share price has appreciated 496% over the past 5 years, 1,491% over
the past 10 years, 3,640% over the past 20 years, and 10,342% since
our IPO. CoStar stock has consistently proven more valuable than
cash. We believe that this combination will further enhance the
long-term value of our shares.
Strategic Rationale and Synergies
The combination presents significant cost
synergies, revenue synergies, and organic growth opportunities,
including through acceleration of innovation, servicing new and
expanded customer segments, and reducing revenue volatility. A
combination of the existing CoStar business with CoreLogic would
result in $150-$250 million annual, run-rate EBITDA synergies.
These synergies alone are worth over several billion dollars of
value for stockholders of the combined company, even before
considering the growth potential and new products made possible by
the transaction.
There are significant cost synergies in this
combination because there are potentially hundreds of millions of
dollars in duplicative costs. CoStar Group provides commercial real
estate solutions and CoreLogic provides residential solutions. And
while the solutions that CoStar Group and CoreLogic provide are
completely different, both companies invest heavily in very similar
underlying technology and processes that collect and create real
estate information including property data, photographs, drone
imagery, maps, aerials, market analytics, and analytic models. The
basic technology required to search for listings and display data
and photos on a map are the same whether the properties are office
buildings or houses for sale. CoStar Group and CoreLogic combined
will have nearly ten thousand personnel working as software
developers, researchers, or photographers, all collecting similarly
structured, distinct but related, real estate content. In
combination, there is vast potential to de-duplicate processes and
achieve significant cost synergies.
In terms of growth, this combination would
triple CoStar Group’s total addressable market. The scale of the
total addressable market created by combining a global leader in
digitizing commercial property with a global leader in digitizing
residential real estate is truly staggering. We estimate that
globally commercial properties have an aggregate value of $66
trillion dollars and residential properties have an aggregate value
of $114 trillion. Combined, these companies will be very well
positioned for growth meeting the information, analysis, and
marketing needs of the $180 trillion global real estate industry.
The global value of real estate is twice the value of all public
companies combined.
We believe that we can significantly
accelerate CoreLogic’s organic growth rate. CoStar Group has a
well-established track record of acquiring slow growth companies
constrained with single digit organic growth rates and managing
them to become fast growth companies, with double digit organic
growth rates. In the three years prior to CoStar Group acquiring
LoopNet, revenues on average were -2.3% a year. In the past two
years, LoopNet has grown almost 20% a year. Already we have grown
LoopNet’s revenues more than four-fold. In the three years prior to
acquiring Apartments.com, revenue grew at 7.7% a year on average.
In the past three years Apartments.com has grown almost 30% a year
on average. Already we have grown Apartments.com’s revenue more
than 6.5x. We believe that with product enhancements, new products,
more direct selling, cross selling, selling to new audiences and
segments, and integrated product offerings, there is a similar
opportunity to increase significantly CoreLogic’s organic growth
rate.
CoStar is the perfect strategic partner for
CoreLogic and together we can drive transformative innovation.
CoStar provides commercial real estate solutions and CoreLogic
provides distinct residential real estate solutions to brokerage
firms and real estate agents, banks, lenders, local, state, and
federal agencies, property owners, developers, investors,
appraisers, and firms selling solutions to the people and companies
that use real estate solutions. A very large percentage of these
organizations have an interest in both residential and commercial,
but today have to purchase different solutions from CoStar Group
and CoreLogic to meet their complete real estate needs. Using
disparate point solutions is inconvenient and reduces the value of
the respective offerings. This is a strategic acquisition that will
provide our combined clients with integrated solutions across all
the relevant real estate sectors. The combined company expects to
eliminate the artificial differentiation between commercial and
residential real estate digital solutions. We believe that these
integrated solutions will create massive cross-selling
opportunities, significantly increasing product uptake, sales and
hundreds of millions of dollars in revenue synergies. CoreLogic has
approximately 150 professionals in its sales organization and
CoStar Group has 1,060. In combination, the companies have the
resources necessary to realize the potential cross-selling
opportunity.
We believe that many of the solutions CoStar
Group so successfully offers today, which are only delivered to
commercial real estate, can be extended into residential real
estate. Marketplaces like Apartments.com and LoopNet are just two
examples of these opportunities. Conversely, many of the products
CoreLogic only offers to residential audiences today could also be
offered to commercial real estate audiences. Property Tax
Solutions, Appraisal Management, Symbility, Flood Data Solutions,
and Building Cost Data are just a few examples of these
opportunities. We believe that by leveraging existing technology
assets into new segments of real estate the combined company can
create additional significant new cross-selling and revenue
synergies.
Further, we believe that we can achieve all
of these synergies while significantly reducing the volatility of
CoreLogic’s revenue, which have historically experienced exposure
to market cycles. Much of CoreLogic’s revenues are reoccurring, but
that is very different from subscription revenue. Reoccurring
revenue is volatile, while subscription is much less so and has
greater visibility. CoStar has a track record of acquiring
businesses with seasonal or cyclical revenue variances associated
with reoccurring revenue and converting those businesses to
predictable and stable subscription revenue. Eighty percent of
CoStar’s revenue is subscription-based, up from 67% five years ago.
LoopNet, Apartments.com, ForRent.com, and Apartment Finder were all
businesses with only reoccurring revenue. In the aggregate, we have
now converted the vast majority of revenue in those products to
predictable subscription revenue. We sell our information services
to banks for commercial loans on a stable subscription basis, while
CoreLogic sells it on a variable on-demand basis. We believe that
there is a clear opportunity to convert that revenue and other
CoreLogic revenue into more predicable subscription revenue.
Since CoStar Group and CoreLogic serve very
different industry segments with cycles that are generally not
correlated, combining the companies will further diversify the
revenue sources and create a more stable combined entity.
Addressing Rumored CoreLogic Board
Concerns
Since October 2020, we have made multiple
acquisition proposals to CoreLogic. We were surprised to see your
announcement of the Pending Transaction when we believed that our
last conversation with your advisors had addressed all of your
remaining concerns. The media has speculated about the reasons the
CoreLogic Board may have chosen to accept an inferior offer and
while none were identified in our negotiations as conditions to
acceptance of our offer, we have attempted to address them in our
Proposal, including: time to close, antitrust and interim business
operations.
This deal has a very high certainty of
closing in a rapid time frame. We expect that the transaction
should close within 6 months, barring any material unforeseen
issues. As detailed below, we have provided a customary 12-month
termination date to allow appropriate certainty of closing, with
any further extension requiring CoreLogic’s consent.
Throughout this process your advisors, our
advisors, analyst reports, and major shareholders have agreed that
there is no antitrust risk in this combination. CoStar Group
provides commercial property listings and analytics to commercial
real estate brokers and owners and internet marketplaces for lead
generation for commercial properties for lease and sale. CoreLogic,
on the other hand, aggregates publicly available property tax
assessment data, publicly recorded sales and mortgage transactions
to provide various solutions needed in residential real estate. In
addition, CoreLogic provides multiple listing services the software
and hosting services they need to manage residential listings. Our
respective companies are in completely different markets. CoStar
and CoreLogic do not compete with one another in any way. No client
or prospect ever chooses between buying a CoreLogic solution versus
buying a CoStar Group solution. They cannot because our products
are completely different. Given the presence of multiple providers
of the publicly available data CoreLogic resells, there are simply
no meaningful antitrust concerns.
We had already agreed to accept an efforts
covenant that addressed all of the remote antitrust risks
identified by both of our respective counsel. Beyond that and to
match the Pending Transaction, we agree that if the transaction
does not close due to a failure to obtain antitrust approvals,
CoStar will pay a reverse termination fee in the amount of $330
million. That will give the CoreLogic Board certainty of close. And
while there may have been legitimate antitrust risks when a Black
Knight affiliate was attempting a hostile takeover of CoreLogic,
there are no such risks here. CoreLogic stockholders will demand a
more credible explanation than antitrust concerns before voting to
accept the Pending Transaction over our Proposal and losing a
billion dollars of value.
We are committed to allowing CoreLogic to
continue to operate its business in the ordinary course subject to
limited and customary CoStar approval rights – with such approval
not to be unreasonably withheld – over activities that could impact
the cost of the transaction or the value of CoreLogic’s business.
It is as important to CoStar as it is CoreLogic stakeholders that
your company remains healthy and stable. We reiterate our prior
commitment to working together and responding promptly to any
requests that you have in order to operate your business in the
interim period, and have now included that if we do not respond
within two business days of any requested consent, CoreLogic will
be free to proceed with such requested action. We believe the
CoreLogic stockholders would appreciate the fact that CoStar has a
thirty-plus year history of working seamlessly with acquired
companies to arrive at a successful closing. Core to that success
is CoStar’s track record of allowing such companies the freedom to
continue running their businesses in any relevant interim period.
Our Proposal would allow CoreLogic management to have as much, and
in some instances more, operational flexibility as compared to the
terms of your Pending Transaction.
CoreLogic’s talented management team and
staff is a critical part of the proposed combination. We absolutely
want to retain that talent and see them grow in the new combined
company. Our Proposal also allows for various personnel
compensation-related matters that your management team last
presented to us as important, including adequate pre-closing
flexibility, while balancing against the need to preserve
incentives for post-closing retention of CoreLogic personnel.
Further, we believe that our Proposal is superior to the terms of
the Pending Transaction with respect to both (i) preserving your
flexibility between signing and closing as to employment and
compensation matters and (ii) the potential purchaser’s obligations
with respect to your continuing employees during the 12 months
following the closing.
In addition, we assume that media speculation
around the CoreLogic Board demanding an equity collar on our prior
proposed exchange ratio was erroneous because that was never
communicated to us. In fact, both of our financial advisors agreed
that an equity collar would present an inconsistent message to
stockholders, given the merits and strong rationale for the
combination. We instead focused on offering CoreLogic stockholders
the highest value possible, rather than a lower value with a
collar.
It has been reported that Stone Point has
secured $5.5 billion of debt to finance its acquisition of
CoreLogic. If true, that implies leverage of over ten times, based
on historical EBITDA – a crushing debt load, with potentially
devastating consequences for CoreLogic, its employees, and clients.
For a business that could otherwise invest in its technology and
product offerings, will there be any room for those investments in
the future? For a business that has historically cycled with the
economy will the business be strong enough to survive an economic
downturn? The extreme level of debt could have a very negative
impact on the ten thousand employees and contractors who depend on
CoreLogic for their paychecks. CoreLogic’s solutions are valued by
banks, real estate agents, government agencies, and many others. If
CoreLogic is loaded with massive debt, will it put those clients’
operations at risk? Will Stone Point be under pressure to hastily
break CoreLogic into many pieces and sell them off? We believe that
these are some of the important considerations for Board
deliberations beyond deal economics.
In CoStar Group’s proposed acquisition of
CoreLogic the result would be a company with a rock solid balance
sheet with strong cash flow for investment, innovation,
competition, and growth. CoreLogic’s employees, clients,
communities, and our combined shareholders would benefit from a
strong future for the combined company.
As you are aware, our financial advisor is
Goldman Sachs, our legal advisor is Latham & Watkins LLP, and
we and they are available to discuss any aspect of the Proposal. We
and our advisors have reviewed the merger agreement regarding the
Pending Transaction. On that basis, we are separately sending to
you and your legal advisors drafts of the merger agreement and
disclosure schedules which we would be prepared to enter into in
all material respects.
We continue to review all potential
possibilities for the benefit of our stockholders and the future of
the CoStar business.
Conclusion
We sincerely hope that you will act without
further delay to secure this compelling opportunity for your
stockholders. Under the current terms of the Pending Transaction,
our Proposal constitutes a “Competing Proposal” that is being sent
without any solicitation or encouragement from CoreLogic or its
representatives, which would allow you to negotiate and discuss
this Proposal with CoStar, subject to the terms of such Pending
Transaction.
We are confident that after consultation with
your outside legal counsel and financial advisors and considering
all legal, regulatory and financing aspects of this Proposal that
you deem appropriate, that this Proposal is more favorable, from a
financial point of view, to CoreLogic’s stockholders than the
transactions contemplated by the Pending Transaction. There can be
no question that our Proposal constitutes a “Superior Proposal”
under the terms of the Pending Transaction.
On behalf of CoStar we wish to engage with
CoreLogic and its advisors immediately in order to capture for our
respective stockholders, customers and people the tremendous
superior value inherent in the Proposal.
Sincerely,
Andrew C. Florance Chief Executive Officer
CoStar Group, Inc.
-------
About CoStar Group, Inc.
CoStar Group, Inc. (NASDAQ: CSGP) is the leading provider of
commercial real estate information, analytics and online
marketplaces. Founded in 1987, CoStar conducts expansive, ongoing
research to produce and maintain the largest and most comprehensive
database of commercial real estate information. Our suite of online
services enables clients to analyze, interpret and gain unmatched
insight on commercial property values, market conditions and
current availabilities. STR provides premium data benchmarking,
analytics and marketplace insights for the global hospitality
sector. Ten-X provides a leading platform for conducting commercial
real estate online auctions and negotiated bids. LoopNet is the
most heavily trafficked commercial real estate marketplace online
with over 7 million monthly unique visitors. Realla is the UK’s
most comprehensive commercial property digital marketplace. The
Apartments.com network, ApartmentFinder.com, ForRent.com,
ApartmentHomeLiving.com, Westside Rentals, AFTER55.com,
CorporateHousing.com, ForRentUniversity.com and Apartamentos.com
form the premier online apartment resource for renters seeking
great apartment homes and provide property managers and owners a
proven platform for marketing their properties. Homesnap is an
industry-leading online and mobile software platform that provides
user-friendly applications to optimize residential real estate
agent workflow and reinforce the agent-client relationship. CoStar
Group’s websites attracted an average of approximately 69 million
unique monthly visitors in aggregate in the third quarter of 2020.
Headquartered in Washington, DC, CoStar Group maintains offices
throughout the U.S. and in Europe, Canada and Asia with a staff of
over 4,300 worldwide, including the industry’s largest professional
research organization. For more information, visit
CoStarGroup.com.
Forward-Looking Statements
This report and exhibits contain forward-looking statements
within the meaning of the federal securities law that are not
historical or current facts. Such statements are based upon current
plans, estimates and expectations that are subject to various risks
and uncertainties. The inclusion of forward-looking statements
should not be regarded as a representation that such plans,
estimates and expectations will be achieved. Words such as
“anticipate,” “expect,” “project,” “intend,” “believe,” “may,”
“will,” “should,” “plan,” “could,” “target,” “contemplate,”
“estimate,” “predict,” “potential” and words and terms of similar
substance used in connection with any discussion of future plans,
actions or events identify forward-looking statements. All
statements, other than historical facts, including statements
regarding the ultimate outcome of discussions between CoStar Group
and CoreLogic, including the possibilities that CoStar Group will
not pursue a transaction with CoreLogic or that CoreLogic will
reject a transaction with CoStar Group; the ability of the parties
to complete a transaction when expected or at all; the risk that
the conditions to the closing of any proposed transaction,
including receipt of required regulatory approvals and approval of
CoreLogic’s stockholders, are not satisfied in a timely manner or
at all; potential litigation related to any proposed transaction;
the expected benefits of any proposed transaction, such as expected
cost, EBITDA, Adjusted EBITDA and/or revenue synergies, the
accretive nature of the transaction or expected adjusted EPS,
efficiencies, cost savings, tax benefits, revenue, growth potential
of Costar Group, CoreLogic or a potentially combined company,
expanded customer segments and total addressable market, reduced
revenue volatility, cross-selling opportunities, market profile and
financial strength, including near term and long-term value for
shareholders, and opportunities for long-term growth, value
creation and product innovation, including an integrated and
improved offering; the competitive ability and position of Costar
Group, CoreLogic or a potentially combined company; the ability to
effectively and efficiently integrate the companies and their
technology and content acquisition to create a comprehensive
solution; future plans and investments; and any assumptions
underlying any of the foregoing, are forward-looking statements.
Factors that may affect the future results of CoStar Group are set
forth in CoStar Group’s filings with the SEC, including CoStar
Group’s most recently filed Annual Report on Form 10-K, subsequent
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
other filings with the SEC, which are available on the SEC’s
website at www.sec.gov. The risks and uncertainties described above
and in CoStar Group’s most recent Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q are not exclusive and further
information concerning CoStar Group and its business, including
factors that potentially could materially affect CoStar Group’s
business, financial condition or operating results, may emerge from
time to time. Readers are urged to consider these factors carefully
in evaluating these forward-looking statements, and not to place
undue reliance on any forward-looking statements. Readers should
also carefully review the risk factors described in other documents
that CoStar Group files from time to time with the SEC. The
forward-looking statements in these materials speak only as of the
date of these materials. Except as required by law, CoStar Group
assumes no obligation to update or revise these forward-looking
statements for any reason, even if new information becomes
available in the future.
No Offer or Solicitation
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval, nor shall there be any sale of securities in
any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. No offer of securities
shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as
amended.
Additional Information and Where to Find It
This communication relates to a proposal which CoStar Group has
made for an acquisition of CoreLogic. In furtherance of this
proposal and subject to future developments, CoStar Group (and, if
a negotiated transaction is agreed, CoreLogic) may file one or more
registration statements, proxy statements, tender offer statements
or other documents with the SEC. This communication is not a
substitute for any proxy statement, registration statement, tender
offer statement, prospectus or other document CoStar Group and/or
CoreLogic may file with the SEC in connection with the proposed
transactions.
INVESTORS AND SECURITY HOLDERS ARE URGED TO READ ANY PROXY
STATEMENT(S), REGISTRATION STATEMENT(S), TENDER OFFER STATEMENT,
PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC
CAREFULLY IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT COSTAR GROUP,
CORELOGIC AND THE PROPOSED TRANSACTIONS. Any definitive proxy
statement(s) or prospectus(es) (if and when available) will be
mailed to stockholders of CoStar Group and/or CoreLogic, as
applicable. Investors and security holders will be able to obtain
copies of these documents (if and when available) and other
documents filed with the SEC by CoStar Group free of charge through
the website maintained by the SEC at www.sec.gov. Copies of the
documents filed by CoStar Group (if and when available) will also
be made available free of charge by accessing CoStar Group’s
website at CoStarGroup.com.
Certain Information Regarding Participants
This communication is neither a solicitation of a proxy nor a
substitute for any proxy statement or other filings that may be
made with the SEC. Nonetheless, CoStar Group and its directors and
certain of its executive officers and other members of management
and employees may be deemed, under SEC rules, to be participants in
the solicitation of proxies in respect of the proposed transaction.
Security holders may obtain information regarding the names,
affiliations and interests of such individuals in CoStar Group’s
Annual Report on Form 10-K for the year ended December 31, 2019,
which was filed with the SEC on February 26, 2020, and its
definitive proxy statement for the 2020 annual meeting of
stockholders, which was filed with the SEC on April 24, 2020 and
certain of its Current Reports on Form 8-K. Additional information
regarding the interests of such individuals in the proposed
transaction will be included in one or more registration
statements, proxy statements, tender offer statements or other
documents filed with the SEC if and when they become available.
These documents (if and when available) may be obtained free of
charge from the SEC’s website http://www.sec.gov and CoStar Group’s
website at CoStarGroup.com.
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CoStar Group Investor Contacts Scott Wheeler Chief
Financial Officer (202) 336-6920 swheeler@costar.com Bill
Warmington Investor Relations (202) 346-5661 wwarmington@costar.com
Media Contact Matthew Blocher Marketing & Communications
(202) 346-6775 mblocher@costar.com
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