FTC Places Conditions on CoStar's $860 Million Acquisition of LoopNet
Commercial Real Estate Data Provider Required to Sell LoopNet's Interest in Xceligent and to Refrain from Conduct Hindering Other Providers
The Federal Trade Commission will require CoStar Group, the largest provider of commercial real estate information services in the United States, to sell LoopNet's ownership interest in Xceligent, under a proposed order settling charges that CoStar's $860 million acquisition of LoopNet would be anticompetitive .
The proposed FTC order requires the combined firm to sell LoopNet's interest in Xceligent, a significant provider of U.S. commercial real estate information. CoStar's, LoopNet's, and Xceligent's listings databases and information services are used by brokers, lenders, investors, appraisers, developers, and others in the commercial real estate industry.
The FTC also will require conduct relief that is unusual in a merger settlement. In order to allow for others, including Xceligent, to expand or enter into the space, CoStar will lift non-compete provisions and allow customers in longer-term contracts to terminate them early. CoStar also will refrain from bundling its products together in ways that could impede its competitors.
"The listings databases and information services provided by these companies are critical to their customers in the commercial real estate industry," said Richard Feinstein, Director of the agency's Bureau of Competition. "By maintaining Xceligent as an independent competitor and ensuring Xceligent's ability to grow and expand, the FTC's settlement order will foster continued competition in these markets."
CoStar actively tracks and aggregates commercial real estate listings and property-specific information nationwide and provides subscription-based access to its comprehensive database. LoopNet operates the most heavily trafficked commercial real estate listings database in the United States and offers some commercial real estate information services. Xceligent, like CoStar, actively tracks and aggregates commercial real estate listings and property-specific information and maintains a detailed and comprehensive database.
The FTC's complaint alleges the proposed acquisition would be anticompetitive and would violate the FTC and Clayton Acts by reducing competition in the markets for these listings databases and information services. Listings databases allow parties to publicize and to search for commercial real estate properties for sale or lease. Information services compile the in-depth data necessary to evaluate commercial real estate assets and opportunities. For example, parties use commercial real estate information services to make better-informed decisions about both asking price, and whether to execute sales or lease agreements.
The complaint states that CoStar and LoopNet are the only two providers of commercial real estate listings databases with nationwide coverage. The complaint also states that CoStar is the largest provider of actively researched listings databases and comprehensive information services. CoStar's most similar competitor for information services is Xceligent, which currently provides comprehensive commercial real estate information covering 33 metropolitan areas. CoStar's proposed acquisition of LoopNet would eliminate the direct and substantial competition between the two companies and may reduce competition between CoStar and Xceligent, due to LoopNet's ownership stake in Xceligent.
Under the proposed settlement order, CoStar will sell LoopNet's stake in Xceligent to DMG Information, Inc. (DMGI), a U.S.-based subsidiary of British media and data conglomerate Daily Mail & General Trust, PLC. The order also requires the combined CoStar-LoopNet to take certain steps that will ensure that Xceligent is able to continue to compete and expand aggressively in the U.S. market for commercial real estate listings databases and information services.
The proposed order maintains Xceligent's competitive position and is designed so that the acquiring firm, DMGI, will be able to rapidly grow Xceligent into a more complete, national listings database and information services alternative to the merged CoStar-LoopNet. DMGI specializes in information services and has significant experience in the commercial real estate information industry. DMGI's industry-specific expertise, coupled with its substantial long-term investments in other commercial real estate information firms, will enable DMGI and Xceligent to be an effective competitor to the combined CoStar-LoopNet, according to the FTC.
In addition, under the terms of the proposed order, CoStar and LoopNet will sell the URL "commercialsearch.com" to DMGI, and transfer to DMGI information that will assist Xceligent in expanding coverage to additional metropolitan areas.
Importantly, the proposed settlement order includes provisions that, for five years, will protect Xceligent while it expands its services. Specifically, the order:
- prohibits CoStar and LoopNet from restricting customers' ability to support Xceligent;
- requires CoStar and LoopNet to allow customers to terminate their existing contracts, without penalty, with one year's prior notice. This provision is designed to prevent long-term CoStar subscription commitments from hindering competition;
- bars the merged CoStar and LoopNet from requiring customers to buy any of its products as a condition for receiving other products, and from requiring customers to subscribe to multiple geographic coverage areas to gain access to a single area in which they are interested; and
- requires CoStar and LoopNet to continue to offer their customers certain core products on a stand-alone basis for three years after the acquisition.
The proposed order also requires the combined CoStar-LoopNet to notify the FTC in advance before acquiring any firm that gathers, markets, or sells commercial real estate information in the United States in the next 10 years.
The Commission vote to accept the consent agreement package containing the proposed consent order for public comment was 4-0-1, with Commissioner Maureen K. Ohlhausen not participating. The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, through May 29, 2012, after which the Commission will decide whether to make the proposed consent order final.
Interested parties can submit written comments electronically or in paper form by following the instructions in the "Invitation To Comment" part of the "Supplementary Information" section. Comments can be submitted electronically . Comments in paper form should be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission by the respondent that the law has been violated. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.