The listings databases and information services provided by both companies are used by brokers, lenders, investors, appraisers, developers, and others in the commercial real estate industry. LoopNet's premium Xceligent service is CoStar's closest competitor, the FTC found.
The FTC also said it will require an "unusual" level of conduct remedies for a merger settlement. In order to allow for Xceligent and other competitors to expand or enter the market, CoStar must eliminate non-compete provisions in its contracts and allow customers in longer-term contracts to terminate them early. CoStar must also refrain from bundling its products 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."
The FTC said that without the divestiture the acquisition would be anticompetitive and violate federal law by reducing competition among real estate listings databases and information services.
The FTC found 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 listings databases and comprehensive information services compiled by in-house researchers. While most of LoopNet's information is provided to the company by real estate brokers, its Xceligent product, like CoStar's, is compiled by in-house research. Xceligent listings cover 33 metropolitan areas.
The proposed settlement, which still needs final approval of the commission after a public comment period, requires CoStar to sell LoopNet's stake in Xceligent to DMG Information Inc., a U.S.-based subsidiary of British media and data conglomerate Daily Mail and General Trust plc. DMGT is paying $4 million for Xceligent.
For instance, CoStar and LoopNet must sell the URL "commercialsearch.com" to DMGI, and transfer to DMGI information that will assist Xceligent in expanding coverage to additional metropolitan areas. Also for the next five years, CoStar and LoopNet will be barred from requiring customers to enter contracts that restrict their ability to do business with Xceligent. To make sure existing long-term contracts don't hinder competition, the companies also must allow customers to terminate their existing contracts, without penalty, with one year's prior notice. During the five-year span the merged firm is also barred from requiring customers to buy more than one of its products and from requiring customers to subscribe to multiple geographic coverage areas to gain access to a single area.
CoStar and LoopNet must also continue to offer their customers certain core products on a standalone basis for three years after the acquisition.
Finally, the combined company must 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.
CoStar said it plans to close the deal "on or about" April 30.
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