CoStar got welcome news over the weekend as one of two major activist investors dropped its bid to force the company to halt its push into residential real estate via the Homes.com platform, according to a report.
The hedge fund Third Point sold its entire stake in CoStar and said it would no longer pursue an effort to install a new board of directors. The fund has been critical of the company’s heavy investment in trying to compete with Zillow, Realtor.com and Redfin, Reuters reported.
Reuters cited anonymous sources and said that it had reviewed a letter from Third Point’s CEO explaining the move. The letter, Reuters reported, noted that Third Point still believed CoStar was undergoing a “reckless drain” on its spending.
“We no longer believe that our original thesis holds true today and have disposed of our position in its entirety,” Loeb wrote in a letter to investors, Reuters reported. “…Despite our efforts, CEO Andy Florance has continued what can only be seen as a reckless drain on a majority of the company’s operating income into Homes.com and related acquisitions, even as the share price has continued to plummet.”
Third Point previously called CoStar’s investment in Homes.com a “fiasco” allowed by a “feckless board” amid a “quixotic quest” by CoStar CEO Andy Florance. A second hedge fund, D.E. Shaw, quickly joined Third Point in the proxy battle.
CoStar strongly pushed back against the efforts, saying that its heavy investment cycle into Homes.com had ended and followed a playbook the company has used along its path to becoming a dominant player in commercial real estate.
“CoStar Group is focused on executing our proven playbook to build on our momentum as we enter our next chapter of margin expansion and profitable growth,” a spokesperson for the company said in a statement. “We look forward to continuing to engage with stockholders as we continue to unlock the tremendous value of our digital ecosystem.”
Amid its defense of Homes.com, CoStar hired a leading defamation law firm to represent the company. CoStar also suggested that D.E. Shaw had ulterior motives for joining the fight, noting that the hedge fund also invested in other real estate companies.
More recently, D.E. Shaw suggested that CoStar had shifted its financial reporting in a way that made the performance of the Homes.com metric less transparent.
Amid the backdrop of the fight is CoStar’s stock price, which has fallen 43 percent so far this year.
D.E. Shaw hasn’t responded to multiple requests for comment since the proxy fight began, including on Monday.
