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BETHESDA, MD-CoStar Group has made its second bid for competitor Reis Inc.–and like its earlier attempt two months ago, that offer has been spurned. CoStar offered an all-cash bid of $8.75 per share–its same bid on June 5. However, as CoStar president Andrew Florance noted in a letter to REIS president and CEO Lloyd Lynford that has been made public, Reis’ share price has dropped by approximately 20% since it declined CoStar’s initial bid. The apparent hope was that Reis’ board of directors, not to mention the company’s shareholders, would lobby management for the acquisition.

The offer price represents a premium of approximately 97% above Tuesday’s closing price of $4.44 per share, CoStar said. Neither company returned calls to GlobeSt.com in time for publication.

It did not take Reis long to reject the same offer again. Shortly before the close of business Wednesday, it issued a statement that its board of directors rejected CoStar’s proposal. The Board’s view is that the price offered in the CoStar proposal is inadequate, according to the press release, as “the price is below the long-term value Reis could realize for its stockholders by the pursuit of its business as an independent entity and the continued disposition of its real estate assets, or by a sale of the company.”

“It is extraordinarily disappointing that, after our Board unequivocally rejected CoStar’s $8.75 proposal, CoStar has seen fit to come back with exactly the same proposal in a hostile fashion,” Lynford, says in the prepared statement. “To judge the value of our company by the daily trading prices of its relatively illiquid common stock makes no sense. We trust that our clear second rejection of CoStar’s offer will prompt CoStar to withdraw it. Our Board will, of course, review carefully any serious proposal from any responsible third party.”

Only Reis and CoStar know how this story will continue to unfold. CoStar could launch a hostile bid, make a higher offer, or it could drop the matter entirely. Reis can continue fend off CoStar, it could bargain for a higher bid price, or it could look for another buyer.

The companies, both providers of market data in the real estate industry, are competitors and if an acquisition were to happen it would be a significant consolidation in this niche–as well as a narrowing of focus for Reis, which was formed in May 2007 in a merger between the privately held Reis and Wellsford Real Properties Inc. “We believe a combination with CoStar would eliminate very substantial duplicative costs and provide the opportunity to immediately refocus Reis’ business entirely on the real estate information services segment,” Florance said in his letter.

Competitors in this space include Real Capital Analytics in New York City and Property & Portfolio Research in Boston. Both companies declined to comment for this story. Each company, though–including CoStar and Reis–approach the market in a different way, says Hessam Nadji managing director of research services at Marcus & Millichap. For that reason, customers might not want to see mergers among these players, he suggests to GlobeSt.com.

“If you examine both companies strengths and weaknesses objectively and their operating methods objectively you will see it is actually better that they are different companies,” he says. Marcus & Millichap subscribes to all four for that reason, Nadji continues. “They each have their own strengths. We use their data to come to our own conclusions and issue our own forecasts for our clients.”

For instance, he says, one of RCA’s strength is a focus on analyzing and identifying trends in property sales. One of PPR’s, by contrast, is long-term forecasting using several different models.

Interestingly, Lynford was asked to differentiate between CoStar’s and Reis’s strength in the earnings call for Q1 2008, by a private investor. He gave a very detailed answer, according to a transcript of that call.

“Costar clearly is the leading provider of information of what we might call the space market,” he said. “It primarily supports brokers and leasing agents to help them serve clients who are out in the marketplace looking to lease facilities. Reis, on the other hand, primarily serves the investor marketplace–those people who have capital at risk in either debt or equity investments.

“So that influences the type of research that we each perform. They’re going to be very, very focused on what we might call suite-level availabilities. There might be space on the third floor of a building with northerly views, seven windowed offices. Our client base cares less about that type of information and more about information that influences the cash flow potential of the asset. So we’re going to focus on things like concessions and absorption rates and a lot of things that drive a discounted cash flow valuation for our property.”

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