Hedge fund Third Point was one of two major companies that strongly criticized CoStar’s attempts to compete with the three major residential real estate portals.
KoStar received some welcome news over the weekend after one of its two major activist investors withdrew a bid to force the company to halt its expansion into residential real estate through its Homes.com platform, according to reports.
Hedge fund Third Point said it would sell all of its shares in CoStar and would no longer work to form a new board of directors. According to Reuters, the fund has criticized the company’s large investments in trying to compete with Zillow, Realtor.com and Redfin.
Reuters, citing anonymous sources, said it had reviewed a letter from Third Point’s CEO explaining the move. Reuters said the letter said Third Point still believed Koster was engaging in “reckless spending.”
“We no longer believe that our original theory still holds true and we have completely liquidated our position,” Loeb said in a letter to investors, Reuters reported. “…Despite our efforts, CEO Andy Florance continues to act in what we believe to be a reckless plowing of the majority of the company’s operating profits into Homes.com and related acquisitions, even as the stock price continues to plummet.”
Third Point previously called CoStar’s investment in Homes.com a “colossal blunder” allowed by a “reckless board” amid a “bizarre quest” by CoStar CEO Andy Florance. A second hedge fund, DE Shaw, quickly joined Third Point in the proxy fight.
KoStar strongly pushed back against the effort, saying the cycle of heavy investments in Homes.com is over and the company is following the strategy it has used on its path to becoming a dominant player in commercial real estate.
“CoStar Group is focused on executing its proven strategy to build on its momentum as it enters its next chapter of margin expansion and profitable growth,” a company spokesperson said in a statement. “We look forward to continuing to engage with our shareholders as we continue to unlock the tremendous value of our digital ecosystem.”
In defending Homes.com, CoStar retained a leading defamation law firm to represent it. Mr. Koster also pointed out that the hedge fund had investments in other real estate companies and suggested that Mr. DE Shaw may have had an ulterior motive for entering the fray.
Recently, DE Shaw suggested that CoStar had changed its financial reporting in a way that made the performance of the Homes.com metrics less transparent.
The dispute stems from CoStar’s stock price, which has fallen 43% since the start of this year.
DE Shaw has not responded to multiple requests for comment since the proxy fight began, including on Monday.
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