* Deal for $3.5 bln, or $70.53 per share, in stock
* See at least $100 mln cost savings per year by 2016
* Trulia shares rise as much as 20 pct to $67.49
(Adds Zillow CEO comments, updates shares)
By Abhirup Roy and Supantha Mukherjee
July 28 Zillow Inc said it would buy
smaller rival Trulia Inc for $3.5 billion, combining
the top two U.S. real estate websites to cut costs, after they
failed to produce profits from a rising number of home buyers
The deal, which antitrust experts say is unlikely to face
regulatory hurdles as there are very few barriers to enter the
market, will enable the companies to cut heavy marketing costs
that have seen both run up heavy losses.
The companies, rivals for nine years, said the all-stock
deal would help save at least $100 million a year by 2016.
Between them, the companies spent $382 million in 2013, more
than their revenue. Their combined loss was $30 million.
Trulia's shares jumped 20 percent to a high of $67.49, still
well short of the offer, which values the company at $70.53 per
share. Zillow's shares rose as much as 4 percent to $164.90.
Short-seller Citron Research, which has campaigned against
Zillow for about two years, said the combined company would
still be not big enough to stand up to the real estate industry.
Zillow and Trulia list properties for sale or rent on behalf
of homeowners and real estate agents and generate revenue
through subscriptions and advertising.
Zillow, known for estimated home values called "Zestimates",
reported 83 million unique users in June, ranking above websites
such as Buzzfeed and Pandora. Trulia had 54 million users.
Despite the dominance, Zillow played down antitrust risk to
"In internet media, the competition is only a click away so
if the user doesn't like the product they're experiencing, they
can hit the back button and they can go somewhere else," Zillow
Chief Executive Spencer Rascoff told Reuters TV.
Trulia's shareholders will receive 0.444 shares of Zillow
for each share and will own about a third of the combined
company after the deal.
"I think it was a little above what people were expecting
but the opportunities are big enough that you can justify it,"
said Telsey Advisory Group analyst James Cakmak, who covers both
Zillow and Trulia.
The U.S. online real estate advertising market is expected
to grow 41 percent to $16.3 billion in 2015 from 2013, said
market research firm Borrell Associates.
Tiger Global Management, Morgan Stanley and BlackRock
Institutional Trust feature among the top 10 shareholders in
both the companies.
TOO EASY TO COMPETE?
Citron claims Zillow's business model is unsustainable,
saying it offers many agents rock bottom rates even as the
agents plan their own rival site. (bit.ly/1rKDZVE)
Zillow has rejected Citron's claims and shares of both
companies have been on a tear, leading to sky-high valuations as
property advertising has moved to the Internet from newspapers.
Yet earnings have been slow to follow. Trulia's annual
losses have widened even as revenue has nearly doubled every
year since 2010. Zillow's revenue has grown only slightly
Zillow shares should be valued at $15.53, based on analysts'
earnings growth forecasts over the next decade, according to
StarMine. That is about a tenth of the stock's market value.
Up to Friday's close, Zillow's shares had nearly doubled
this year and Trulia's shares had gained about 60 percent.
An estimated 71 percent of potential U.S. homebuyers used
one or both services, according to a recent survey by research
firm ComScore, but the deal is seen passing antitrust scrutiny.
"People may be complaining because they're not
technologically savvy but if they ask their 8- or 10-year old to
help them they would be able to compete in the Internet as
effectively as these companies," said Evan Stewart, an antitrust
expert at Cohen & Gresser LLP.
Trulia's shares jumped as much as 40.5 percent to $57 on
Thursday after Bloomberg first reported that Zillow may buy the
Zillow's shares closed up 1 percent at $160.32 on the
Nasdaq, while Trulia ended up 15.4 percent at $65.04 on the New
York Stock Exchange.
Goldman Sachs is the financial adviser and Shearman &
Sterling LLP and Perkins Coie LLP is legal counsel to Zillow.
JP Morgan Securities and Qatalyst Partners are Trulia's
advisers and Goodwin Procter LLP and Wilson Sonsini Goodrich &
Rosati are its legal counsel.
(Additional reporting by Diane Bartz in Washington and Bobbi
Rebell in New York; Editing by Joyjeet Das and Saumyadeb