All-Stock Merger Proposal Represents a 20% Improvement to the Value of CoreLogic’s Pending Transaction
Combination of CoStar Group and CoreLogic Expected to Deliver $150 - $250 Million in Annual Run-Rate Adjusted EBITDA Synergies Within Three to Four Years, Delivering Superior Value to CoreLogic Shareholders
Transaction Is Expected to Be Highly Accretive to Adjusted EPS by Approximately 30 Percent in Year One Before Synergies
WASHINGTON — (BUSINESS WIRE) — February 16, 2021 — Today, CoStar Group, Inc. (NASDAQ: CSGP) delivered a letter to the Board of Directors of CoreLogic (NYSE: CLGX) setting forth the terms of a superior proposal by CoStar Group to acquire 100% of the equity interests of CoreLogic. Under the terms of the proposal, CoreLogic shareholders would receive 0.1019 shares of CoStar Group common stock in exchange for each share of CoreLogic common stock, representing a value of approximately $95.76 per share based on CoStar Group’s closing share price on February 12, 2021. CoStar’s proposal represents 16.2% pro forma diluted ownership for CoreLogic shareholders in the combined entity, and a $15.76 per share improvement to the value of CoreLogic’s pending transaction as of February 12, 2021.
The following is a copy of the letter that CoStar Group delivered to the Board of Directors of CoreLogic on February 16, 2021:
Dear CoreLogic Board Members:
Given our substantial engagement since early December, we were stunned to read about the acquisition of CoreLogic by Stone Point Capital and Insight Partners on February 4, 2021 (the “Pending Transaction”). Their cash bid of $80 per share was materially less than our last all-stock offer, which had a headline value of $86.30 per share. The decision to accept the lower $80 per share bid from a sponsor instead indicates a failure to appropriately value the synergies of our proposal as a strategic bidder.
We do not believe the Pending Transaction maximizes value for CoreLogic stockholders and we continue to believe in the strong strategic rationale for the combination of our two companies. We hereby submit this “Competing Proposal” that will provide superior value to CoreLogic’s stockholders. The fact that CoreLogic stock continues to trade well above the Pending Transaction price is a clear indication that the shareholders agree with us. Accordingly, we propose moving forward with an acquisition of CoreLogic that will provide value directly to CoreLogic’s stockholders that is substantially superior to the value they would receive in the Pending Transaction.
Terms of our Proposal
We propose a merger transaction whereby CoStar would acquire 100% of the equity interests of CoreLogic for consideration of $95.76 per share based on the latest CoStar closing price. The consideration would be delivered in 0.1019 shares of newly issued CoStar common stock for each share of CoreLogic’s issued and outstanding common stock (the “Proposal”). This implies a headline value of $92 per share based on the latest 30-day volume-weighted average CoStar share price. This represents an equity value of approximately $6.9 billion and a premium of 74% to CoreLogic’s unaffected share price on June 25, 2020. This offer represents a $15.76 per share improvement over the Pending Transaction. Based upon Friday’s close at $81.99 ($1.99 above the Pending Transaction), our Proposal delivers to CoreLogic stockholders over $1 billion more in value than the Pending Transaction. The Pending Transaction represents a 2.4% discount to Friday’s close, while our offer represents a 17% premium to Friday’s close.
At the heart of our Proposal is a value proposition for the direct benefit of the CoreLogic stockholders that greatly exceeds the Pending Transaction. The Proposal implies pro forma diluted ownership of approximately 16.2% in the combined entity for current CoreLogic stockholders. CoStar Group’s offer is clearly the superior offer to CoreLogic’s shareholders in immediate value, but we believe that with hundreds of millions of dollars of synergies, the implied ownership of the Proposal provides substantial value upside, which we believe would deliver value in excess of $105 per share to CoreLogic stockholders over time.
CoStar Group’s stock is a solid currency and has performed exceptionally well through decades, driven by solid fundamentals such as our compound annual revenue growth of 21% over the past 20 years, 21% over 10 years, and 19% over 5 years. With consistent growth and a huge addressable market, CoStar Group’s share price has appreciated 496% over the past 5 years, 1,491% over the past 10 years, 3,640% over the past 20 years, and 10,342% since our IPO. CoStar stock has consistently proven more valuable than cash. We believe that this combination will further enhance the long-term value of our shares.
Strategic Rationale and Synergies
The combination presents significant cost synergies, revenue synergies, and organic growth opportunities, including through acceleration of innovation, servicing new and expanded customer segments, and reducing revenue volatility. A combination of the existing CoStar business with CoreLogic would result in $150-$250 million annual, run-rate EBITDA synergies. These synergies alone are worth over several billion dollars of value for stockholders of the combined company, even before considering the growth potential and new products made possible by the transaction.
There are significant cost synergies in this combination because there are potentially hundreds of millions of dollars in duplicative costs. CoStar Group provides commercial real estate solutions and CoreLogic provides residential solutions. And while the solutions that CoStar Group and CoreLogic provide are completely different, both companies invest heavily in very similar underlying technology and processes that collect and create real estate information including property data, photographs, drone imagery, maps, aerials, market analytics, and analytic models. The basic technology required to search for listings and display data and photos on a map are the same whether the properties are office buildings or houses for sale. CoStar Group and CoreLogic combined will have nearly ten thousand personnel working as software developers, researchers, or photographers, all collecting similarly structured, distinct but related, real estate content. In combination, there is vast potential to de-duplicate processes and achieve significant cost synergies.
In terms of growth, this combination would triple CoStar Group’s total addressable market. The scale of the total addressable market created by combining a global leader in digitizing commercial property with a global leader in digitizing residential real estate is truly staggering. We estimate that globally commercial properties have an aggregate value of $66 trillion dollars 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.
We believe that we can significantly accelerate CoreLogic’s organic growth rate. CoStar Group has a well-established track record of acquiring slow growth companies constrained with single digit organic growth rates and managing them to become fast growth companies, with double digit organic growth rates. In the three years prior to CoStar Group acquiring LoopNet, revenues on average were -2.3% a year. In the past two years, LoopNet has grown almost 20% a year. Already we have grown LoopNet’s revenues more than four-fold. In the three years prior to acquiring Apartments.com, revenue grew at 7.7% a year on average. In the past three years Apartments.com has grown almost 30% a year on average. Already we have grown Apartments.com’s revenue more than 6.5x. We believe that with product enhancements, new products, more direct selling, cross selling, selling to new audiences and segments, and integrated product offerings, there is a similar opportunity to increase significantly CoreLogic’s organic growth rate.
CoStar is the perfect strategic partner for CoreLogic and together we can drive transformative innovation. CoStar provides commercial real estate solutions and CoreLogic provides distinct residential real estate solutions to brokerage firms and real estate agents, banks, lenders, local, state, and federal agencies, property owners, developers, investors, appraisers, and firms selling solutions to the people and companies that use real estate solutions. A very large percentage of these organizations have an interest in both residential and commercial, but today have to purchase different solutions from CoStar Group and CoreLogic to meet their complete real estate needs. Using disparate point solutions is inconvenient and reduces the value of the respective offerings. This is a strategic acquisition that will provide our combined clients with integrated solutions across all the relevant real estate sectors. The combined company expects to eliminate the artificial differentiation between commercial and residential real estate digital solutions. We believe that these integrated solutions will create massive cross-selling opportunities, significantly increasing product uptake, sales and hundreds of millions of dollars in revenue synergies. CoreLogic has approximately 150 professionals in its sales organization and CoStar Group has 1,060. In combination, the companies have the resources necessary to realize the potential cross-selling opportunity.