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Zillow to Acquire Trulia for $3.5B in All-Stock Deal

JUL 28, 2014 10:41am ET
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Zillow Inc. agreed to purchase Trulia Inc. for $3.5 billion in an all-stock deal that is designed to make the combined entity the largest in online real estate advertising.

Trulia shareholders will receive 0.444 shares of Zillow for each share of Trulia, the companies said in a statement today. That’s equivalent to Zillow offering $70.53 a share for Trulia, or 25 percent above Trulia’s closing price of $56.35 on July 25. Zillow shareholders will own two-thirds of the combined company, while Trulia stockholders will own a third.

Trulia Chief Executive Officer Pete Flint will continue leading the site and join Zillow's board. He will report to Zillow CEO Spencer Rascoff, the companies said. A second Trulia board member, who hasn’t been determined yet, will also join Zillow’s board.

The deal positions a unified Zillow and Trulia to capture a larger share of digital real estate ads as more people shift house hunting onto the Web and property agents deploy more marketing dollars onto the Internet. While there are other real estate websites such as Move Inc. and Redfin Corp. that are growing, Zillow and Trulia are the top two most-visited property sites in the U.S. tracked by ComScore Inc.

A combination makes sense as Zillow and Trulia are the two biggest companies in the online real estate market and have "virtually identical" business models, Tom White, an analyst at Macquarie Capital USA, said last week. "This could pave the way to these companies becoming more profitable more quickly."

Zillow and Trulia shares jumped on July 24 when Bloomberg News reported deal talks between the companies, with Zillow stock rising 15% and Trulia’s soaring 32%. Zillow closed at $158.86 in New York on July 25.

Zillow shares fell 2% to $155.61 at 9:04 a.m. today in early trading, lowering the value of the stock deal to about $69.09 a share. Trulia shares rose 15% to $64.65.

Rascoff said in an interview that the deal to buy Trulia signals that Zillow is creating a portfolio of online real estate brands, which lets the company appeal to the broadest audiences and attract the biggest set of real estate advertisers. The strategy is akin to how IAC/InterActiveCorp has multiple online dating brands such as Match.com and Tinder, he said.

"This clearly solidifies our brand portfolio approach," Rascoff said. "What's taking shape is the creation of a real estate media company."

Zillow and Trulia help house hunters find information on homes, generating revenue by selling advertising and charging real estate agents to place their listing prominently. The companies estimate total spending on real estate advertising in the U.S. is $12 billion a year, of which Zillow and Trulia together currently have less than 4% of the market.

Rascoff said that Zillow approached Trulia about a deal six weeks ago. Discussions were veiled in secrecy, with Trulia codenamed tiger and Zillow codenamed zebra. Communications about the deal required the password of jungle, he said.

"We suggested that now might be a good time to combine," Rascoff said in the interview. "Both of us are coming in from a position of strength and there is a lot of revenue momentum. The stars aligned."

The deal is the largest acquisition for Zillow, according to data compiled by Bloomberg. The Seattle-based company under Rascoff’s helm bought New York real estate website Streeteasy.com for $50 million last year and apartment-search site HotPads Inc. for $16 million in 2012. Earlier this month, Zillow purchased Retsly Software Inc., a Vancouver-based real estate company.

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