CoStar Proxy Battle: Baillie Gifford Backs Florance Amid Activist Pressure

A battle for control of real estate data giant CoStar is brewing as the company faces a proxy fight initiated by activist hedge funds Third Point and DE Shaw. The dispute centres on CoStar founder and CEO Andy Florance’s significant investment in the online listings platform Homes.com, a venture the hedge funds deem a distraction from the company’s core business.

Shareholder Divide

Third Point, led by Daniel Loeb and DE Shaw have publicly voiced their concerns, calling for an overhaul of CoStar’s board of directors. They argue that resources are being misallocated to Homes.com, which is not expected to become profitable until 2029 and currently generates annual revenue of $90 million. The board nomination window opens in mid-March, at which point Third Point intends to propose a rival slate of directors, potentially seeking to replace a majority of the current board.

Did You Know? CoStar acquired Homes.com in 2020, and its shares have been broadly flat over the past five years.

However, not all shareholders agree with the activist funds’ assessment. Baillie Gifford, CoStar’s seventh largest shareholder, has publicly backed Florance’s strategy, stating that the company has a proven track record of successful reinvestment and that Homes.com represents its “next major growth engine.”

The Stakes are High

The conflict extends beyond a simple board dispute. The criticism leveled at Homes.com and its association with Florance suggests that Third Point and DE Shaw may be aiming to remove the CEO who founded the company in 1987. Such challenges to founding CEOs have become increasingly common, as evidenced by similar battles at Twitter and Salesforce in recent years.

Expert Insight: Activist investor campaigns targeting founding CEOs often escalate beyond board representation, reflecting a fundamental disagreement over long-term strategy and capital allocation. The outcome of these battles can significantly reshape a company’s direction and performance.

Baillie Gifford’s investment manager, Kirsty Gibson, highlighted the potential for Homes.com to mirror the success of CoStar’s other offshoots, Apartments.com and LoopNet, particularly with the launch of new AI capabilities. CoStar’s market capitalization stood at $19 billion as of Friday’s close, though its shares have dropped 38 percent over the past year.

CoStar declined to comment on the situation. Third Point and DE Shaw did not respond to requests for comment.

Frequently Asked Questions

What is the core disagreement between the hedge funds and CoStar?

The disagreement centres on the investment in Homes.com. Third Point and DE Shaw believe it is a poorly executed project diverting resources from CoStar’s profitable core business, while Baillie Gifford views it as a potential future growth driver.

What actions are the activist hedge funds proposing?

Third Point and DE Shaw are calling for an overhaul of CoStar’s board of directors, with Third Point indicating it will propose a rival slate of nominees when the board nomination window opens in mid-March. They have also suggested divesting Homes.com.

Who are CoStar’s largest shareholders?

Vanguard Group and BlackRock collectively own 24.5 percent of CoStar’s shares. Baillie Gifford is the seventh largest shareholder.

How will this proxy battle ultimately affect CoStar’s future remains to be seen. Will the company double down on its investment in Homes.com, or will pressure from activist investors force a strategic shift?