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.
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