Three days after real estate juggernaut CoStar Group sweetened its offer to acquire property data and analytics firm CoreLogic, the latter has come back with a response: Not sweet enough.
On Monday, CoStar upped its previous $7 billion, all-stock bid for CoreLogic by $6 per share, or an additional $450 million, so that CoreLogic shareholders would receive $6 in cash per share and 0.1019 shares of CoStar Group’s common stock in exchange for each share of CoreLogic stock.
The value of the proposed package represents approximately $90 per share based on CoStar’s closing price on February 26, or $97 per share based on the 30-day volume-weighted average share price, the company said in a statement Monday.
The revised offer came a month after CoreLogic agreed to be acquired by private equity firm Stone Point Capital and Insight Partners for $6 billion. In a letter to CoreLogic shareholders, CoStar CEO Andy Florance said CoStar was “confident” CoreLogic’s board of directors would consider its revised offer a “Superior Proposal” under CoreLogic’s existing agreement with Stone Point Capital and Insight Partners.
But in a letter on Thursday, CoreLogic President and CEO Frank Martell informed Florance that the CoreLogic board had not concluded that CoStar’s revised offer qualified as a “Superior Proposal.”
“The CoreLogic Board unanimously believes your Updated Proposal requires further improvement with respect to the following key areas: (i) value, (ii) certainty of value, and (iii) certainty of closing in a timely manner,” Martell wrote.
“We continue to believe that there is strategic potential in the combination of our two businesses and we request that you reconsider your positions on these important terms.”
In regards to value and value certainty, Martell pointed out that CoStar’s shares have declined by about 19 percent, or $177 per share, since the company’s Feb. 16 acquisition bid and therefore the company’s updated proposal represents a “significantly lower total per share value” than that previous bid.
“$6 per share in cash does not meaningfully reduce CoreLogic shareholders’ exposure to the concerning volatility of your stock,” Martell said. “The volatility and trajectory of CoStar’s share price have driven increased concerns with respect to the certainty of value associated with CoStar’s stock, particularly in light of your proposed terms that contemplate an antitrust process of up to 15 months.”
Martell also noted that the updated proposal includes a termination date that CoStar can extend unilaterally to potentially a year beyond the expected second-quarter closing date of the deal with Stone Point and Insight.
“Given that … we observe that the time value of money at any reasonable cost of capital and assumed period of incremental time to transaction close impacts the present value of your Updated Proposal,” Martell said.
He asked CoStar to reconsider its position and “deliver increased, more certain value and as much cash consideration as possible.”
“We would note again that CoStar and the combined business would have sufficient capacity to finance all or a majority of the transaction in cash (with the potential for public equity offerings to further that capacity), and a material increase in the level of cash consideration as part of a transaction would improve the strength of your Updated Proposal,” Martell said.
Regarding certainty of timing, Martell noted that Florance’s public statements indicating he believes “the deal has a very high degree of certainty of closing in a rapid time frame” and “there are simply no meaningful antitrust concerns” are inconsistent with the updated proposal’s provision that would allow CoStar to extend the termination date up to 15 months from signing in order to get antitrust approval from regulators.
“A 15-month outside date exposes CoreLogic shareholders to unnecessary delay and risk, as well as exposure to CoStar stock price volatility,” Martell said.
During CoStar’s fourth-quarter earnings call last week, Florance said the deal with CoreLogic would be unlikely to attract the attention of antitrust regulators because the two companies currently serve “completely different markets” — though Florance hopes that will change.
“This combination would triple CoStar Group’s total addressable market by combining the global leader in digitizing commercial property with a global leader in digitizing residential real estate,” Florance said during the call.
“We estimate that globally commercial properties have an aggregate value of $66 trillion, and residential properties have an aggregate value of $114 trillion. Combined, these companies will be very well positioned for growth, meeting the information analysis and marketing needs of the $180 trillion global real estate industry. The global value of real estate is twice the value of all public companies combined.”
With the acquisition of CoreLogic, CoStar hopes to “eliminate the artificial differences” between commercial and residential real estate digital products where customers interested in both currently have to purchase different products from CoStar and CoreLogic, according to Florance. CoStar would do this in part by offering several of CoreLogic’s residential products to commercial customers.
“We believe that these integrated solutions will create massive cross-selling opportunities, significantly increasing product uptake sales and hundreds of millions in revenue synergies,” Florance said.
Martell concluded Thursday’s letter by stating that CoreLogic would send CoStar a revised merger agreement “reflecting important, limited clarifications” to the merger agreement CoStar included with its updated proposal.
“We continue to appreciate your interest in acquiring CoreLogic and we remain committed to protecting and maximizing value for our shareholders,” Martell said. “Our feedback above is aligned with that objective, and our Board stands at the ready to reconvene should you determine to revise your proposal to address these matters.”
In a press release containing the letter, CoreLogic noted that its merger agreement with Stone Point and Insight “remains in full force” and that the CoreLogic board had not withdrawn or modified its recommendations that CoreLogic’s shareholders vote in favor of the deal.
CoStar did not immediately respond to an emailed request for comment from Inman. We will update this story if and when we hear back.