After a year of scrutiny, the Federal Trade Commission (FTC) resolved its competitive concerns over the merger of two firms that provide commercial real estate (CRE) listings and other data. In April 2011, CoStar Group, Inc. announced plans to acquire LoopNet, Inc. for approximately $860 million. Two days ago, the FTC announced that it had approved a consent decree with CoStar and LoopNet, which sets forth the conditions to which the parties agreed for the merger to proceed. Click here to view the FTC’s announcement and the underlying papers.
The consent decree not only requires the divestiture of LoopNet’s interest in Xceligent, which the FTC describes as a “significant provider” of CRE information in the U.S., but also provides for a number of conduct remedies meant to help Xceligent replace the competition lost by the merger. The FTC is increasingly using conduct provisions in consent decrees to help remedy perceived harm to competition.
CoStar is the largest provider of CRE information services in the U.S. It aggregates listings and information to create and maintain a comprehensive CRE database. LoopNet operates the most heavily trafficked CRE listings database in the United States. Xceligent provides a research-driven database similar to CoStar and is the third leading provider of CRE information services. LoopNet owns a substantial stake in Xceligent.
The FTC alleged that the acquisition may substantially lessen competition in the markets for CRE listings databases and CRE information services by eliminating competition between CoStar and LoopNet, and between CoStar and Xceligent. The FTC found that significant barriers to entry existed, such that the anticompetitive effects of the merger would be durable.
To remedy the anticompetitive effects of the acquisition, the FTC required the parties to divest Xceligent to a third party, DMG Information, Inc., a subsidiary of British conglomerate Daily Mail & General Trust, PLC. In addition to the Xceligent assets, the parties agreed to divest certain LoopNet data to facilitate Xceligent’s expansion into new metropolitan areas.
The consent decree also contains several conduct provisions designed to further facilitate Xceligent’s competitiveness and lower entry barriers into the markets. In addition to requiring the waiver of covenants not to compete on employees seeking to obtain employment with Xceligent, the consent also:
- 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, a provision designed to prevent long-term CoStar subscription commitments from hindering competition;
- requires notification before acquiring any firm that gathers, markets or sells CRE information;
- 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.
For companies considering merging, this action confirms that the FTC continues to be aggressive in merger enforcement and creative in crafting remedies for the mergers that it challenges. For those in the CRE industry, the merger and the remedy may well alter how CRE listings and information are provided.