Zillow agreed to purchase Trulia for $3.5 billion in an all-stock deal that is designed to make the combined entity the largest in online real estate advertising.
Trulia shareholders will receive 0.444 shares of Zillow for each share of Trulia, the companies said in a statement today. That's equivalent to Zillow offering $70.53 a share for Trulia, or 25% above Trulia's closing price of $56.35 on July 25. Zillow shareholders will own two-thirds of the combined company, while Trulia stockholders will own a third.
Trulia Chief Executive Officer Pete Flint will continue leading the site and join Zillow's board. He will report to Zillow CEO Spencer Rascoff, the companies said. A second Trulia board member, who hasn't been determined yet, will also join Zillow's board.
The deal positions a unified Zillow and Trulia to capture a larger share of digital real-estate ads as more people shift house hunting onto the Web and property agents deploy more marketing dollars onto the Internet. While there are other real estate websites such as Move Inc. and Redfin Corp. that are growing, Zillow and Trulia are the top two most-visited property sites in the U.S. tracked by ComScore Inc.
"The opportunity here is very large -- both companies are growing extremely fast," said Ron Josey, an analyst at JMP Securities who rates Zillow the equivalent of a buy. "They should be able to benefit from some sort of brand awareness and the network effect just grows with this deal alone."
Mr. Rascoff said in an interview that the deal to buy Trulia signals that Zillow is creating a portfolio of online real estate brands, which lets the company appeal to the broadest audiences and attract the biggest set of real-estate advertisers. The strategy is akin to how IAC/InterActiveCorp has multiple online dating brands such as Match.com and Tinder, he said.
"This clearly solidifies our brand portfolio approach," Mr. Rascoff said. "What's taking shape is the creation of a real-estate media company."
The combination is projected to cut expenses by at least $100 million a year by 2016, including savings in advertising and hiring costs, Mr. Rascoff said on a conference call.
Zillow and Trulia help house hunters find information on homes, generating revenue by selling advertising and charging real estate agents to place their listing prominently. The companies estimate total spending on real estate advertising in the U.S. is $12 billion a year, of which Zillow and Trulia together currently have less than 4% of the market. Still, regulators must approve the deal before it can close because the companies are the two biggest real estate websites.