IA's Special Situation Research

Institutional Analyst: Special Situation Research

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IA's Special Situation Report, Thursday 4/28/2011.

Los Angeles, CA 56..76F Sunny.
Chicago, IL, 38..45F Rain.
Port Jefferson, NY, 52..68F Sunny. 198
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1. LoopNet (LOOP) $14.37, To Be Acquired at $16.80.
2. Adding Move.com (MOVE) $2.36, or Realtor.com to Watch List.
3. Adding ZipRealty.com (ZIPR) $2.71 to Watch List.
4. Zillow Files for IPO.
5. Disclaimer.

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IA's Special Situation Report
http://iaspecialsituationresearch.ning.com/

Blog Version:

1. LoopNet (LOOP) $14.37, To be Acquired at $16.80.

Represents a total equity value of approximately $860 million, or better than $400 million gain, from where we found it. Happy, happy.

So here's the funny story about this 137% gain !

LoopNet Chart:

 



We have a good friend Xavier Franco, one of the biggest commercial real estate brokers in Beverly Hills, mention to us a couple of years ago that "your people" (we hate that term), should be looking at commercial real estate here in BH."

He said, "Some trophy properties that never, ever come up for sale, are coming up for sale. Properties which are typically handed down from generation to generation from people who would have no idea to do with the money, if they sold, are selling."

And we fully agreed. But since he said, "your people" we decided to throw back a subliminal dig and say "..wouldn't it be better to invest in some publicly traded vehicle, which had exposure to the real estate market. Or maybe a sexy dotcom publicly traded commercial real estate play like LoopNet (LOOP) ? My people wouldn't have pay an 8% commission and as for liquidity, we can get out in a minute, versus in what -- out in a year."

He gave us the finger, we bought him a $16 Martini (two actually) and it was "all good."

So the funny thing is, we didn't know anything about LoopNet, other than that they were in that space. So we read up on it, liked what we read and added it to he Watch List. Simple as a pimple.

So now we ask, 2 years and twenty days later, what piece of commercial real estate went up 137% during that same time period ?

Yeah right, none. Goose-egg. Maybe in China or Brazil, but we don't know any brokers there. Score another accidental gain for Perry & Co.!

Equally interesting, we haven't seen a press from LoopNet on the deal from LoopNet, but it didn't take long for Levi & Kosinsky to announce investigation.

Original Write-up: http://iaspecialsituationresearch.ning.com/profiles/blogs/adding-lo...

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CoStar (CSGP) To Acquire Loopnet (LOOP).

The commercial real estate market is one of the largest asset classes in the United States with over $11 trillion in value and the potential size of the industry providing marketing and information services to commercial real estate professionals is approximately $30 billion, according to CoStar.

The transaction will double the size of CoStar's paid subscriber base to at least 160,000 which represents approximately 15% of the estimated one million participants in the commercial real estate market.

The combined company will be the premier resource for researching, analyzing, and marketing commercial real estate properties online and will be positioned to provide more widespread market coverage for customers ranging from large, national brokerage and institutional market players to small, local brokers and owners.  With the addition of LoopNet's complementary listings, CoStar will have a database with approximately two million active listings

LoopNet.com is the industry's largest and most heavily trafficked online marketplace with 4.8 million registered members and more than 6 million unique visitors quarterly, according to Google Analytics. CoStar operates the largest and most robust commercial real estate information database with over 77 billion square feet of office, retail, and industrial inventory, 1.5 million listings.

http://markets.financialcontent.com/demo/?GUID=18289498&Page=MediaViewer&Ticker=CSGP

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2. Adding Move.com (MOVE) $2.36, or Realtor.com to Watch List.
3. Adding ZipRealty.com (ZIPR) $2.71 to Watch List.

If we were a broker, we would be dancing a jig today ! The reason is it's hard to sell a stock which is going up -- and thus earn a commission -- because it could keep going up and that makes the client unhappy. But if you don't earn a commissions, that makes the family, unhappy. So you're kind of between a rock and a hard place.

But when an acquisition or acquisition offer comes along -- you have the perfect excuse to sell (earn a commission) and buy something else with the proceeds (double the proceeds in this case) and earn another commission. Which of course you the client, should be all but too happy to pay -- and full boat.

You don't ask for a good client "discount" when a guy doubles your money in two years. You pay the good broker "premium." You keep the karma going -- you over-tip your bartender.

So what would we do today if we were still in the brokerage business ? We'd buy something "similar, which hasn't moved yet. Or in today's case, two things which are similar, but haven't moved.

If our client bought 10,000 shares of LoopNet for $69,000 -- we'd sell today for (assuming a $16 opening) $160,000.

Then we'd buy 30,000 shares of Move.com for $70,000.
Then we'd buy 29,000 shares of ZipRealty.com for $78,000

Then we'd send him a check for $12,000 (you have to let them bank something) and tell him to spend it at the Emperors Club as client #10 !

As for a write-up on Move & Zip, it should be obvious that others will be doing the "similarity" play, so we felt we had to get this out without and before any due diligence. We'll follow up in another letter.

Here's a chart of all three (on the site if the link doesn't work):

 



http://bigcharts.marketwatch.com/advchart/frames/frames.asp?show=&insttype=Stock&symb=loop&time=12&startdate=1%2F4%2F1999&enddate=4%2F28%2F2011&freq=1&compidx=aaaaa%3A0&comptemptext=move+zipr&comp=move+zipr&ma=0&maval=9&uf=0&lf=1&lf2=0&lf3=0&type=2&style=320&size=2&timeFrameToggle=false&compareToToggle=false&indicatorsToggle=false&chartStyleToggle=false&state=12&x=43&y=14

All three have been comparative losers since going public.

LoopNet basically unchanged since going public in 2006.
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=loo...

Move.com way down from $7 in 2006 (don't even look at were it was in 2002 -- you may go bargain hunting crazy).

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=mov...

And Zipperhead is down from $10 in 2006.

 

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=zipr&insttype=&freq=2&show=&time=12

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4. Zillow Files for IPO.

Early to the game, late to he game ? Only time will tell.

Zillow Files for IPO. http://www.zillow.com/blog/2011-04-18/zillow-files-for-proposed-ipo/

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This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the benefits of the proposed transaction between COSTAR and LOOPNET, future financial and operating results, the companies' plans, objectives, expectations and intentions and other statements including words such as "anticipate," "may," "believe," "expect," "intend," "will," "should," "plan," "estimate," "predict," "continue" and "potential" or the negative of these terms or other comparable terminology. In addition to these statements, there can be no assurance that the combination of CoStar and LoopNet will deliver more value from the Internet, and the full benefit of the Internet, for the $11 trillion commercial real estate industry; that the two companies will be stronger together; that the potential size of the industry providing marketing and information services to commercial real estate professionals will be approximately $30 billion; that there will be significant opportunities to cross-sell services and reduce costs; that the combined company will be the premier resource for researching, analyzing, and marketing commercial real estate properties online and will be positioned to provide more widespread market coverage for customers; that the scale, complementary service capabilities and diversified client and geographic footprint created by the combination of CoStar and LoopNet will drive significant revenue opportunities and cost saving synergies; that LoopNet's marketplace will become increasingly important to those marketing or searching for properties; that there will be a strong sector recovery; that CoStar will achieve the revenue and cost synergies described in this release; that the transaction will be accretive to non-GAAP net income per diluted share; that the transaction will create a more efficient capital structure; and that the combination will increase the companies' combined long-term target margins.

Such statements are based upon the current beliefs and expectations of management of COSTAR and LOOPNET and are subject to significant risks and uncertainties. Actual results may differ materially from the results anticipated in the forward-looking statements. The following factors, among others, could cause or contribute to such differences: the risk that expected cost savings or other synergies from the merger may not be fully realized or may take longer to realize than expected; the risk that the businesses of COSTAR and LOOPNET may not be combined successfully or in a timely and cost-efficient manner; the possibility that the transaction does not close, including, but not limited to, due to the failure to obtain approval of LOOPNET'S stockholders, or the failure to obtain governmental approval; the risk that business disruption relating to the merger may be greater than expected; and failure to obtain any required financing on favorable terms. Additional factors that could cause results to differ materially from those anticipated in the forward-looking statements can be found in COSTAR'S Annual Report on Form 10-K for the year ended December 31, 2010 and LOOPNET's Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (SEC), including in the "Risk Factors" section of each of these filings, and each company's other filings with the SEC available at the SEC's website (http://www.sec.gov). Neither COSTAR nor LOOPNET undertakes any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

In connection with the proposed merger, COSTAR will file with the Securities and Exchange Commission (SEC) a registration statement on Form S-4 that will include a proxy statement/prospectus for the stockholders of LOOPNET. LOOPNET will mail the final proxy statement/prospectus to its stockholders. Investors and security holders are urged to read the proxy statement/prospectus regarding the proposed transaction and any other relevant documents carefully in their entirety when they become available because they will contain important information about the proposed transaction. Copies of the proxy statement/prospectus (when available) and other related documents filed by CoStar and LoopNet with the SEC may be obtained, free of charge, at the SEC's website at www.sec.gov . Copies of the proxy statement/prospectus and the filings with the SEC that will be incorporated by reference in the proxy statement/prospectus can also be obtained, when available, free of charge, from COSTAR's website, www.costar.com, under the heading "Investors" in the "About Us" tab. These documents may also be obtained, without charge, from LoopNet's website, www.LoopNet.com, under the tab "Investor Relations".

CoStar, LoopNet and their respective directors, executive officers and certain other members of management and employees may be deemed to be participants in the solicitation of proxies from the stockholders of LOOPNET in respect of the proposed transaction. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of the stockholders of LoopNet in connection with the proposed transaction will be set forth in the proxy statement/prospectus when it is filed with the SEC. Information about COSTAR's executive officers and directors is available in COSTAR's definitive proxy statement filed with the SEC on April 27, 2011. Information about LOOPNET's executive officers and directors is available in LOOPNET's definitive proxy statement filed with the SEC on April 4, 2011. Free copies of these documents are available from the COSTAR and LOOPNET websites using the contact information above.

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Going Concern Statements.
We would like to point out that the majority of companies listed on the
OTC Bulletin Board have factors which create an
uncertainty about the their ability to continue as a going concern. These
concerns are typically related to financing (or lack of), competitive
environments, lack of operating history and operating at loss levels which
is typical of most start-ups.
These statement can usually be found in their most recent 10Q filings and
typically you don't have to dig to far down past the financial tables. We
like to use http://www.pinksheets.com for quick and easy access to SEC
filings. We think it would be wise for most investors to assume that all
companies listed on the OTC Bulletin Board (and many on NASDAQ) have going
concern issues.
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