CoStar Group's stock staged a notable move higher on Tuesday, rising 9% after word circulated that Daniel Loeb's Third Point hedge fund is preparing an activist campaign aimed at the real estate data provider.
According to people familiar with the matter, Third Point plans to nominate several directors to CoStar's eight-person board as part of a push to force changes at the roughly $28 billion company. The hedge fund's agenda, as described by those sources, includes a refocus on CoStar's core commercial real estate activities and the shuttering or sale of its residential operations - businesses that were expanded in recent years to compete more directly with residential marketplaces.
Those sources said the activist investor is seeking broader cost reductions, with CEO compensation among the areas targeted. The campaign also aims to replace the majority of CoStar's board directors in an effort to lift the company's share price. The reported plans surfaced just hours after a standstill agreement between the parties expired at midnight.
CoStar owns consumer-facing sites Apartments.com and Homes.com while supplying proprietary information and analytics to real estate developers and tenants. The company's mix of data products and marketplace listings is central to the debate described by the activist fund, which wants management to concentrate on commercial lines of business.
For Third Point, the initiative would mark its first activist campaign in three years, signaling a renewed willingness from the fund's leadership to press for corporate changes intended to unlock shareholder value. How CoStar's management and remaining board members will respond to the nominations and strategic demands was not detailed in the reports.
The situation presents a clear test of governance dynamics at a large, publicly traded real estate technology company and could shape near-term investor sentiment around CoStar's strategy and cost structure.
Summary
- CoStar stock rose 9% after reports that Third Point plans an activist campaign.
- Third Point intends to nominate several directors to CoStar's eight-person board and push for a shift back to commercial real estate, while seeking to exit or sell residential operations.
- The effort includes demands for cost cuts, including trimming CEO pay, and follows the expiration of a standstill agreement.
Key points
- The developments could affect the real estate data and property-listing sectors, since CoStar serves both commercial clients and residential consumers through Apartments.com and Homes.com.
- Corporate governance and activist investor activity are central to the story - Third Point aims to change board composition to press strategic revisions.
- Equity market reaction was immediate, with a double-digit percentage move in the company's shares on the news.
Risks and uncertainties
- It is uncertain whether Third Point's nominations and strategic demands will succeed in securing board seats or achieving the proposed shifts in business focus.
- Efforts to sell or close residential operations, if pursued, could create transitional disruptions for the parts of the business serving consumers and listings markets.
- Changes to leadership compensation and board composition may produce short-term volatility in the company's shares and ongoing governance disputes.