The battle over Costar Group's high-risk, money-losing Homes.com venture escalated as activist investor D.E. Shaw publicly criticized the company's board for its handling of the $3 billion investment.
The latest letter was signed by managing directors Edwin Jager and Michael O'Mary, and came out before the market opened on Feb. 4.
D.E. Shaw and Third Point, which
After last week's letter from Third Point, which promised a proxy fight for the board, Costar issued its own defense, comparing the investor to a disappointed child playing a board game who wants to throw its pieces off of the board.
But today's letter from D.E. Shaw claimed those statements against Third Point demonstrate Costar's management and board "are incapable of accepting constructive investor feedback and are adamantly opposed to reform."
Costar's latest response to the activist investors
Costar reiterated its defense of its strategy when asked for a response to the D.E. Shaw letter and accompanying presentation.
"D.E. Shaw has once again chosen to latch on to Third Point's dangerously misguided effort to have Costar Group abandon Homes.com despite its vital integral strategic importance to long-term shareholder value," a statement from a spokesperson said.
"Over the past month, management has met in person with more than 300 shareholders who expressed enthusiasm for our clear focus on accelerating our EBITDA growth and the exceptional potential within our new Homes.com AI platform," the statement continued. The meetings showed alignment exists with the board for the Homes.com strategy to create durable long-term value for Costar's shareholders.
A meeting between D.E. Shaw and Costar's board
D.E. Shaw met with the Costar board two weeks ago to present alternatives for Homes.com, including exiting, spinning off, divesting or dramatically reducing spending to breakeven by 2027. It also sought the appointment of new, independent directors.
The board dismissed those concerns and reaffirmed its position over Homes.com.
"Worse yet, when we requested to meet with the independent directors without Mr. Florance present so that we could provide unvarnished feedback regarding the Company's leadership, the Board refused," D.E. Shaw said. "In doing so, the independent directors confirmed what we have long suspected: they are far too deferential to Mr. Florance and incapable of providing effective oversight or holding him accountable."
D.E. Shaw's letter reiterated Third Point's comments about what it called the "high-risk, money-losing Homes.com business.
"By the end of this year, Costar will have spent more than $3 billion on Homes.com and diverted the majority of core business earnings over the last four years to fund this venture," the letter said.
Some of Costar's other M&A activity
Homes.com was acquired by Costar in April 2021 for $156 million in cash. In early 2023, Costar was involved in
These transactions followed Costar's unsuccessful hostile bid to
The letter took its own shots at Costar CEO Andy Florance, noting he sold $27 million of the company's stock since November 2022, calling him "the largest offender" on a board which reportedly had been net sellers over the past few years.
"If Mr. Florance and the independent directors truly believed in the Homes.com strategy, we are left wondering why they haven't been adding to their holdings of Costar's stock instead of leaving other shareholders to hold the bag," the letter said.
D.E. Shaw promised "to support shareholder driven change" at the next annual meeting.
Costar's stock hits 52-week low
After the Third Point letter came out before the market opened on Jan. 27, Costar's price shot up $3.47 per share to $69.28 from the previous day's closed. But it ended the day at $66.21 for a gain of just 41 cents.
Since then, Costar's price has been slipping and reached a 52-day low after the D.E. Shaw letter was released, to $50.99 per share before rebounding to $52.16 as of 11 a.m. eastern time.
