Zillow CEO on buying up competitor Trulia amid rush of corporate mergers

Zillow CEO on company's offer to buy rival Tulia


This is a rush transcript from "Your World," July 28, 2014. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST: Cheap doesn't come cheap, and doesn't Dollar Tree know it, the deep discount retailer shelling out $8.5 billion to buy rival Family Dollar.

And Zillow knows it, too, the real estate web site snatching up competitor Trulia for $3.5 billion. That is a 25 percent premium on Trulia's stock value before the deal was announced.

Zillow CEO Spencer Rascoff here on what is behind this urge to merge. Spencer, welcome to you. Congratulations.

SPENCER RASCOFF, CEO, ZILLOW: Thank you, Neil. Thanks for having me.

CAVUTO: Consolidation seems to be the key. And I'm wondering what is driving that consolidation wave. What do you think it is?

RASCOFF: Well, Zillow's plan is to operate multiple brands in the real estate media space.

We already operate Zillow and StreetEasy, which is our New York brand, and HotPads, which is our rentals brand. And we think that by adding the Trulia brand to our family of brands, we can grow our audience even further.

We're a media company. So we sell ads, and, as a result, having multiple brands in order to have a lot of audience is a critical part of our plan.

CAVUTO: Do a lot of your businesses overlap, though? That might have been one of -- the impetus to the deal, but how do you differentiate the two? And what do you get two of you together than each of you individually?


So, about half of Trulia's visitors never go to Zillow, and about two- thirds of Zillow's visitors never go to Trulia. So, there is actually not that much overlap. That allows us to appeal to a larger audience, which in turn is good for our advertisers, because it means advertisers can reach a larger audience by working with one company and across multiple brands.

CAVUTO: You know what I always wonder when I see mergers like yours and I see certainly what happened with the Dollar guys is that they must be reading something in the tea leaves, that either it's time to batten down the hatches or consolidate in like fields because something is coming down to the pike or they fear something is. Is that the case with you?

RASCOFF: You know, I think, in our case, the way we look at it, because it's a stock deal, we evaluate, would we rather own all of Zillow or would we rather own two-thirds of the combined company?

And I think it's better for Zillow shareholders to own two-thirds of the combined company, which is -- in a stock-for-stock deal, that's what we're doing here. We're exchanging -- we're giving up a third of Zillow in exchange for all of Trulia. And Zillow shareholders will own two-thirds of the combined company.

I think, together, this company will be a much more successful than apart. And so owning two-thirds of the combined company is going to be a much better outcome 10, 15 years from now in terms of shareholder value creation than owning 100 percent of Zillow stand-alone.

CAVUTO: Let's talk a little bit about the housing industry for which and your site are widely quoted, and concerns that things are hiccuping a bit and that buyers are either having a case of standing back or not being accepted for loans, but something has sputtered. And do you think that has some -- some duration?

RASCOFF: Yes, something has sputtered.

So, to give you some perspective, home values are now appreciating about 5 percent year over year. And we expect them to appreciate 3 percent to 4 percent over the next 12 months. So the rate of appreciation is clearly slowing. And what is happening, though...

CAVUTO: That will -- wait a minute. That would mean -- you know the math far better than I, but that would mean that a lot of those who were underwater at the time of the 2007-2008 slowdown, ultimate meltdown, still have years potentially to go to make up for the value lost in their home.

RASCOFF: They -- they do. And 19 percent, actually, of homeowners with a mortgage are still upside down on their loan. So, we still have a negative equity crisis in our country.

It's not as bad as it was at the trough of home values, where almost a third of all homeowners with a mortgage had no equity in their home. Now it's about 19 percent. But that's still a tragedy for one out of five homeowners with a mortgage, to effectively not be able to sell their homes, to be locked in their home because they can't sell it because they don't have equity.

And, interestingly, that is what is driving the housing market right now, because particularly in the low home value price band, which have the highest rates of negative equity, because these people put down very little as a down payment, and their home values declined a lot, there's very limited inventory in that low price point. As a result, when inventory does gets listed, it gets bid up because they're limited supply and a lot of demand. So home values in that low price band are appreciating rapid, but there's very limited inventory. So, that is what is happening in the housing market. It's a very local story right now, very city specific, but even within each city, very price band specific.

CAVUTO: Well, what are the hottest markets in the United States right now?

RASCOFF: Well, New York City and the Bay Area continue to only go in one direction, and that's up. In the case of Manhattan...

CAVUTO: See, that worries me, because this is helium, where I am here. And I just wonder if it's going to just pop.

RASCOFF: It -- you know, it's -- what is driving it is a couple of things. It's the finance community in New York, which continues to do very, very well.

CAVUTO: And foreign buyers.

RASCOFF: And foreign buyers.


RASCOFF: And foreign buyers, yes, so, Russian and Middle Eastern and Eastern European buyers at the high end, at the luxury part of the Manhattan real estate's landscape. They're paying very, very high prices.

They're not looking at Manhattan real estate as a place to live. They're looking it as a place, a politically stable place to park cash. And, as a result, it's driving home values up, up and really through the moon in Manhattan.

In the Bay Area, it's the local economy. It's about the job creation in the technology industry and the wealth that continues to be created in the technology -- from the technology industry that is driving home values in San Francisco and the Bay Area.

CAVUTO: All right, Spencer, thank you for taking the time. RASCOFF: Thank you.

CAVUTO: We will be following you and your combined entities very closely, Spencer Rascoff, the CEO of Zillow on a big deal with Trulia today.

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