CoStar rebuts investor claims, hires defamation-focused law firm
After tangling with activist investors over criticism of Homes.com, CoStar said it had engaged a firm specializing in “high-profile reputational attacks.”
CoStar's beef with investors continued this week as the real estate giant clapped back against criticism of its portal strategy — and hinted at the possibility of suing those critics for defamation.
In a March 11 statement, CoStar addressed claims made by D. E. Shaw, a hedge fund and minority stakeholder that sent an open letter to CoStar's board last month urging the company to drop Homes.com. Shaw's demands came on the heels of a similar letter from Third Point blasting CoStar's heavy investment in Homes.com.
D. E. Shaw's position: In a Feb. 4 letter, the fund's managing directors attacked CoStar's "unprecedented level of investment" in what it described as its "high-risk, money-losing Homes.com business." The activist investors also targeted CoStar CEO Andy Florance and the company's purportedly "deferential" board, asserting that the board had failed to hold Florance accountable for what Shaw described as a "value destructive" strategy.
CoStar's initial response: CoStar was quick to refute the claims, issuing a letter of its own on Feb. 5. The company accused the hedge fund of creating a "false narrative," noting that CoStar had already addressed many of the concerns and had recently reduced its investment in Homes.com — but emphasized that scrapping Homes.com entirely would "cause irreparable harm to our entire business and lead to certain and significant value destruction."
A hidden agenda? CoStar's latest statement zeroes in on its financial reporting — then turns the tables on Shaw.
While D. E. Shaw's public letter didn't address reporting segments specifically, the fund managers highlighted revenue (and losses) generated by Homes.com. Today's statement from CoStar suggests Shaw made "misleading claims" about CoStar's financials, noting that "CoStar Group has never reported Homes.com results as a separate segment."
The company went on to state that its current reporting structure "actually offers more transparency," adding: "If D. E. Shaw is worried about transparency, it should start with itself."
The hedge fund, according to CoStar, owns just a small fraction of CoStar Group stock, but it holds a significantly greater combined investment in competitors "who would directly benefit from D. E. Shaw's push for us to abandon Homes.com."
A veiled threat of litigation: The big takeaway from CoStar's latest rebuttal? The statement concluded by mentioning that, "to bolster its team of advisors," it has engaged an outside law firm that specializes in "representing clients in complex defamation matters and high-profile reputational attacks."
Whether the company will pursue litigation — or is simply trying to deter further criticism — is yet to be seen.