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One of CoStar’s largest shareholders has thrown its support behind the real estate data company’s strategy as it stares down a fierce proxy battle with activist hedge funds including Daniel Loeb’s Third Point.
Third Point, quickly followed by DE Shaw, went public in recent weeks with grievances about founder and chief executive Andy Florance’s multibillion-dollar investment in lossmaking listings site Homes.com, calling for an overhaul of the board.
The activist attacks set the stage for a fight for the future of CoStar when the board nomination window opens in mid-March. Loeb has called for the majority of the board to be replaced, suggesting he would propose a rival slate.
UK fund manager Baillie Gifford, CoStar’s seventh largest shareholder, told the FT that CoStar had “repeatedly demonstrated” its ability to reinvest to deliver shareholder returns, arguing that Homes.com was the company’s “next major growth engine”.
CoStar shares have dropped 38 per cent over the past year and are broadly flat over the past five years, dating back to when it acquired Homes.com. Its market capitalisation was $19bn at Friday’s close. CoStar declined to comment. Third Point and DE Shaw did not respond to requests for comment.
In letters published in recent weeks, both hedge funds called for CoStar to consider divesting Homes.com in order to refocus on boosting earnings from its core commercial real estate data business. Homes.com has so far delivered annual revenue of just $90mn and is not expected to turn profitable until 2029.
The funds portrayed Homes.com as an obsession of Florance’s that was distracting him from the core business. Third Point called the project “ill-conceived and hopelessly executed”, while DE Shaw said that under Florance’s leadership CoStar “continued to dedicate disproportionate attention and resources” to the site, which was acquired in 2020.
Baillie Gifford said Homes.com could replicate the success of offshoots Apartments.com and LoopNet.
“In just two years, it has become a national brand with a rapidly expanding audience and subscription base, connecting agents and buyers,” said Kirsty Gibson, investment manager at Baillie Gifford. “The new AI capabilities launching this month will further strengthen its position and help establish CoStar’s next billion-dollar business.”
Third Point and DE Shaw’s fierce criticism of Homes.com and its association with Florance suggests their ambitions may go further than board change to dethroning the executive who founded the company from his university dormitory in 1987.
Squaring off with founders who remain as chief executives has led to some of the most high-profile and volatile activist fights in recent years.
In 2020, Paul Singer’s Elliott Management pushed for the removal of Twitter’s founder and then-chief executive Jack Dorsey, before agreeing to a brokered peace in exchange for a board seat.
Three years later, Salesforce and its co-founder Marc Benioff narrowly dodged a proxy fight against Elliott by agreeing to a raft of strategic changes, including share buybacks.
Gibson said: “As shareholders of CoStar for nearly a decade, we have been patient backers of founder Andy Florance’s ambition to build the ‘Bloomberg of real estate’.
“We remain supportive shareholders as CoStar’s management team pursues disciplined, sustainable growth across commercial, residential and international real estate markets.”
As one of CoStar’s biggest actively managed investors, Baillie Gifford’s support ahead of a likely proxy fight will be a huge boon for the company.
Passive fund managers Vanguard Group and BlackRock are CoStar’s two largest shareholders with 24.5 per cent ownership of shares collectively.
