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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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HOMESTORE.COM, INC.
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TELECONFERENCE Friday, October 27, 2000
DELISE KEIM:
Thank you. Good morning everyone and welcome to our call. We are announcing
today that Homestore.com has signed a definitive agreement to acquire
Cendant's move.com. If you need a copy of the press release, please give us a
call or you can find it posted on our website at www.homestore.com in the
investor relations' section.
This conference call is being broadcast on the web and will be available for
replay. To access the replay, please go to the Conference Call link on the
Investor Relations section of our website.
With me this morning are Stuart Wolff, our chairman and chief executive
officer, John Giesecke, our chief financial officer, and Richard Smith,
Cendant's Chairman and CEO of their Real Estate Division. First, Stuart will
provide you with an overview of the deal, John will then highlight some of the
terms and the financial impact, followed by Richard who will say a few words
from Cendant's perspective. Afterwards, we'll open the call up for your
questions.
At the outset, I need to remind you that the following discussion includes
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those projected. Additional information
concerning factors that could affect our business and financial results is
included in our Annual Report on Form 10-K, our other periodic reports we file
with the SEC and those identified in our press release we issued today
announcing this acquisition. With that I'll turn the call over to Stuart
Wolff.
STUART WOLFF:
Thanks, DeLise. Good morning everyone.
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. As DeLise mentioned, this morning we have announced the signing of a
definitive agreement to acquire Cendant's move.com and certain other
related assets. We are very excited about this acquisition, as it will
significantly extend our network, accelerate our business opportunities
and enhance our value proposition to real estate professionals, consumers
and advertisers. Let me also affirmatively share that we believe the
acquisition will enable Homestore.com to continue its growth and be
accretive to the company's cash operating earnings.
. To begin, I'll take you through a summary of the transaction and then I
will outline why we are so excited about the acquisition.
. This will be a tax free, stock-for-stock acquisition. We will issue
approximately 26.3 million shares and options of Homestore.com which
represents approximately 20% of our outstanding shares on a fully diluted
post acquisition basis. Following the distribution of stock to move.com's
minority shareholders and stock options to move.com employees, Cendant
will retain a 14.6% ownership position in Homestore.com. Pursuant to the
terms of the acquisition, Cendant will be required to vote all of their
shares proportionately with the rest of our shareholders and they have
agreed to a ten-year standstill, which prohibits them from purchasing
additional shares under most circumstances. Cendant is also restricted on
the amount and timing of sales of Homestore.com stock. There are a number
of customary conditions that need to be satisfied before the acquisition
can become effective, including Homestore.com shareholder approval and
regulatory review of the transaction under the Hart Scott Rodino Act. Upon
closing, Cendant will be entitled to name one additional director to our
board, which currently has 6 members. We anticipate closing within the
next 6 months. We view this transaction as a highly complementary
combination that will accelerate Homestore.com's strategic objectives and
increase the value of the Homestore.com network. We believe this
acquisition will let us provide a higher level of service and
functionality to all of our key constituents including consumers, the
advertisers who wish to reach those consumers and the community of real
estate and home service professionals.
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. In connection with the transaction we will be acquiring a number of assets
including the following:
. Move.com, Cendant's online real estate and relocation destination,
currently the number 2 home and real estate network on the Internet
today with over 1.9 million unique users in September according to
Media Metrix.
. Access to the aggregated listings of Century 21, Coldwell Banker and
ERA for 40 years.
. Access to the aggregated listings of the NRT, which is one of the
largest real estate brokerage operators in the country.
. Rent Net, a leading online rental site with inventory from over 13,000
paying apartment communities as well as senior housing, corporate
housing and self storage services.
. Welcome Wagon, recognized for the last 72 years as the brand leader in
introducing participating neighborhood retailers and their services to
new homeowners, with established relationships with over 35,000
merchants today.
. In addition, Cendant will invest in Homestore.com's real estate
transaction platform and has committed their owned and operated
franchises and their leading relocation company, Cendant Mobility, to
use our transaction platform for three years.
. Finally, Cendant has committed to purchase professional subscription
marketing and ASP products and services for its brands and the NRT,
highlighting the value of Homestore.com's technology products and
services to the approximately 12,000 offices and 200,000 agents
representing almost 2 million transactions per year.
. Now lets discuss why this acquisition is so complementary and exciting.
Combining Homestore.com's network, the largest home and real estate
marketplace on the Internet today, with Move.com's large network, expands
Homestore.com's reach and further extends Homestore.com's leadership
position in the online home and real estate space. The combination will
provide consumers and professionals alike an
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even higher quality offering. Consumers will have a broader selection of
functionality, tools and content to help them with all matters related to
the home. With an even larger consumer audience expected, the
Homestore.com network should provide more leads to the home and real
estate professional and broaden their already deep exposure to the home
consumer.
. The acquisition also combines the two most popular websites in the rental
category, SpringStreet and Rent.net; providing the consumer looking for an
apartment or rental property with the largest online selection of rental
properties in the world. The transaction also includes online agreements
with Cendant's three large national franchises: Century 21, Coldwell
Banker and ERA, which provides us with access to their aggregated listings
for 40 years. We also gain additional critical mass in the industry
surrounding the adoption of our real estate transaction platform;
eRealtor, the official real estate platform of the NAR. We will combine
the support of Cendant's three national franchises, the NRT and Cendant
Mobility with that of our previously announced partners - Prudential,
REMAX, GMAC Home Services, Fannie Mae, NAR, Verisign and REFormsNet. In
fact, Cendant has agreed to have the NRT and Cendant Mobility use our
platform for three years.
. We believe these assets are an extremely complementary fit and accelerate
the Homestore.com vision of creating an online marketplace for consumers
and home related professionals to meet, communicate and transact business
together. The US population spends over $1.9 trillion per year on their
home and all of the products and services surrounding it, which represents
over 15% of the GDP. Today, Homestore.com's addressable market is in
excess of $300 billion per year. We have rapidly expanded the categories
surrounding the home that we offer online for consumers, professionals and
merchants to transact business together- beginning with property listings
and expanding into such categories as remodeling, moving and relocation,
lawn and garden and home finances. The value of any marketplace is
directly related to the number of consumers and professionals it has
participating in that marketplace. This acquisition accelerates the
already significant momentum of our
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marketplace by bringing Homestore.com direct access to the 200,000
professionals associated with the Cendant franchises as well as increasing
the breadth and depth of the consumer audience by combining the leading
home and real estate portal sites.
. We believe our acquisition of move.com will fuel and accelerate all three
of Homestore.com's revenue streams; subscriptions, transactions and
advertising.
. Today we provide subscription products to 131,000 professionals across our
network. Our ability to aggregate the largest consumer and professional
audience on the Internet and to consistently deliver leading ASP products
to them has been a cornerstone of our success to date.
. This acquisition highlights the value Cendant has placed on
Homestore.com's technology and ASP products for the estimated 12,000
offices and 200,000 combined agents of Century 21, Coldwell Banker and
ERA. The combination will continue to accelerate Homestore.com's position
as the real estate industry's leading online technology product and
service provider and with the addition of Cendant's three national
franchises, we will now be the online business solution and technology
provider for all 7 of the top 7 national real estate franchises.
. For the first time, through this transaction, the online rental category
will have a clear leader with respect to consumer traffic as well. The
combination of SpringStreet.com, currently ranked number one by Media
Metrix and Rent.net, the number two rental site online, gives apartment
managers a clear choice as to where to gain access to the leading online
consumer audience looking for rental properties. The acquisition of Rent
Net's tools and resources directed toward Seniors, Corporate Housing and
Self Storage accelerates Homestore.com's strategy for servicing these
vertical categories. The combination of these two leading sites gives
consumers access to unparalleled content and tools in this category. With
the addition of the 72 year old Welcome Wagon brand and its 35,000
participating merchants,
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Homestore.com gains access to the local merchant market and it provides
the company with the ability to enhance its offerings to local merchants.
. And finally, with the completion of this acquisition we are optimistic
about our ability to accelerate the adoption of future product offerings
resulting from the increased size of our consumer audience as well as the
expected increase in the size of our professional subscriber base.
. In terms of transaction revenue, Cendant's support of our real estate
transaction platform unifies the top 6 real estate franchises behind our
platform, which is currently under development. The three Cendant
franchises are involved in about 25% of all US real estate transactions
annually. In addition, NRT and Cendant Mobility have both committed to use
our platform for the next 3 years bringing access to the over 400,000
annual transactions done through these two entities alone. Again, having
this kind of momentum and support behind our transactional effort greatly
improves our ability and the speed in which we can introduce and gain
acceptance for our platform. Today, the real estate transaction represents
a market that generates over $95 billion in fees each year and
accelerating our ability to access this market is tremendously valuable to
Homestore.com.
. For our more traditional bricks and mortar advertisers, the combined share
of eyeball minutes in the home and real estate category from these two
networks will create an even more effective mechanism for home product and
service providers to market their products in front of a highly sticky,
targeted and attractive national demographic for their products and
services. In addition, Cendant has committed to develop a series of cross
marketing and advertising programs that will contribute to the promotion
of the Homestore.com brands, including Realtor.com.
. Since John Giesecke will be the Integration Officer of the deal, I'd like
to turn the call over to him for some highlights on the synergies we are
expecting and some more detail on the financial elements of the
transaction. John?
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JOHN GIESECKE:
. Thanks Stuart. As Stuart mentioned, we believe this acquisition is highly
complementary. It will enhance the value of our network by increasing the
number of professionals and consumers on our network and it will
accelerate our financial model by adding even more weight and momentum
behind our transaction platform as well as accelerating the penetration of
our subscription model through the direct access to the 200,000
professionals that comprise Cendant's real estate network. We are
expecting to achieve significant economies of scale and synergies from
this combination. The integration team, consisting of myself, our CIO,
president of SpringStreet.com, Senior VP of HR and VP of Sales, will be
focused on rapidly taking full advantage of these opportunities. Our top
priority will be to maximize the top-line synergies and retain talent,
while cutting costs and reducing redundancy. Included in this focus will
be the integration of our websites - both the vertical portals of
Homestore.com and move.com, as well as the combination of our apartment
locator site, SpringStreet.com with Cendant's Rent Net. We have also
developed and will be integrating our local merchant strategy to take full
advantage of the Welcome Wagon assets.
. With an acquisition such as this, you will have some overlap in audience
and professional customers. We believe the combined company will have an
80-85% unduplicated reach and that less than 10% of Cendant's real estate
agents are current Homestore.com subscribers. In addition, there are no
significant advertising customer overlaps. We believe the revenue
synergies we will realize will offset the minimal overlap that there is,
making this a revenue accretive deal overall. In fact, we remain
comfortable with the published stand alone Homestore.com top-line growth
rates for 2001 and 2002.
. The synergies inherent in the acquisition are exciting as we anticipate
significant cost saving opportunities. Our back office functions will be
consolidated; including physical facilities, human resources, recruiting,
marketing, financial systems,
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technology and capex needs. We also anticipate a reduction in customer
acquisition costs, distribution costs, site maintenance costs and other
overhead costs.
. Due to these cost savings and the anticipated top-line synergies we expect
this transaction to be modestly accretive to Homestore.com's cash earnings
in 2001. Over time, we are hopeful that we will realize additional savings
and operating leverage as we combine the two organizations. If we execute
the strategy and integration as we hope to, we are really excited about
both the top-line and bottom-line opportunities. We will be providing more
specific guidance on the expected financial impacts of this acquisition in
the weeks and months ahead.
. A few details on the logistics and corporate governance specifics of the
deal: As Stuart mentioned, Cendant will be entitled to name one additional
director to our current 6 member board, which can be expanded to 12
members before Cendant is entitled to another seat. Cendant will be
restricted in their ability to sell their Homestore.com shares, with no
sales allowed in the first year and a maximum of 800,000 shares per
quarter in years 2 and 3, up to an aggregate of 3.2 million shares which
can be sold over these two years. They will be required to vote all of
their shares on all corporate matters in proportion to the voting
decisions of all other shareholders. In addition, they have agreed to a
ten-year standstill agreement that, under most conditions, prohibits them
from acquiring additional Homestore.com common shares.
With that, I'll turn the call over to Richard Smith for a few remarks
reflecting Cendant's perspective of the transaction.
RICHARD SMITH:
Thank you John, and good morning, everyone.
To reiterate what Stuart has said, we are very pleased with the proposed
Homestore.com acquisition of move.com.
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The Internet has had a profound impact on many industries, with real estate
being no exception. Several years ago, Cendant recognized the need to broaden
our Internet exposure so that we could leverage our powerful brands and other
assets in the online world while preserving the central role of the real
estate professional. With the development of move.com, in addition to Rent
Net and our other Web sites, we quickly earned the number two position in the
Internet real estate space and built a compelling online business model that
complements our traditional real estate business. We are proud of the success
achieved by move.com and of the support we received from our employees,
franchisees, business partners and consumers.
Over the past year and a half through the operation and ownership of move.com
we have come to the realization that commercial online real estate portals
are in fact complementary to our off-line residential real estate businesses.
It is far more strategic and practical for us to extend the reach of our
brands through the industry-friendly expertise and web based applications and
technology of Homestore, which we view as the very best in the marketplace.
Homestore has pioneered the use of the Internet as a meeting place for
consumers and real estate professionals and as such it significantly
complements our offline business model.
Homestore has done an outstanding job establishing itself as the leading
Internet real estate destination, and we are very pleased to align our
efforts with them. The principal benefit of this transaction for Cendant is--
from our franchisees' perspective -- brokers and agents from our CENTURY 21,
COLDWELL BANKER and ERA franchise systems continue to showcase their
listings -- now on an even stronger marketing vehicle on the Internet,
created by the Homestore /move.com combination. It provides the expertise of
an Internet industry leader to enhance our real estate brands' Web sites and
technology to benefit our franchisees, their sales associates and ultimately
the customer. We expect to enhance Cendant's off-line real estate businesses
and franchise systems with this deal.
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We are very excited about this transaction.
I'll now turn the call back over to Stuart.
STUART:
Thanks Richard.
. I'd like to simply reiterate how excited we are about the opportunities
this acquisition opens up for Homestore.com. The linking up of the number
one online home and real estate network with the number one offline real
estate operator is a powerful combination. With all 7 top real estate
franchises in our camp, we are excited about the prospect of accelerating
our vision of an online marketplace for all participants in the home and
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real estate category to meet and transact business together.
With that, we would be happy to take any questions you might have during
the time allowed. Operator, please open up the lines for questions.
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