Cendant Corporation (NYSE: CD) yesterday (Wednesday, July 28) filed a lawsuit against Homestore.com, operator of the REALTOR.com Web site, contending that HomeStore breached an agreement to negotiate in good faith an equity participation for Cendant in HomeStore.com prior to HomeStore's planned IPO.

Cendant is seeking at least $300 million. HomeStore has not commented on the legal action.

The lawsuit was filed in New York. Cendant is headquartered in Parsippany, N.J., and HomeStore, the recently reincorporated RealSelect, is headquartered in Thousand Oaks, Calif.

According to a corporate statement from Cendant, on June 30, 1998, RealSelect made a written commitment to Cendant to "use reasonable good faith efforts to design an equity participation in RealSelect for Cendant prior to RealSelect's initial public offering, with a target valuation of $7,000,000."

That period was about the time RealSelect was signing "Gold Alliance" contracts with major MLSs and large brokers, offering stock options in exchange for agreeing to exclusively put their property ads on REALTOR.com.

There were news reports at the time stating that HomeStore had paid $20 million to Cendant for the exclusive right to its listings. That figured has been denied by both sides.

"Cendant relied upon (the stock commitment) in entering into a Listings License Agreement and other agreements with RealSelect and in granting RealSelect, subject to certain exceptions, the exclusive third-party use of Cendant listing data, which Cendant would not have granted without the equity participation commitment," the statement said.

"RealSelect benefited tremendously from this commitment, which was a key component to consummating such agreements."

Cendant's statement said it had spent 13 months pursuing its equity participation through meetings and correspondence with RealSelect, now known as HomeStore, but to no avail. It said in its statement that at one point some Cendant officials were personally offered stock -- which was rejected as inappropriate by those officials -- but the company itself never received an offering.

Cendant said that once it became aware of HomeStore's pending IPO, it recognized the need for further action.

Cendant says in its statement that "RealSelect, by signing the June 30, 1998, agreement without any intention of complying with it, fraudulently induced Cendant to enter into the Agreements that dramatically increased the value of HomeStore.com. The benefits HomeStore.com has derived as a result of these wrongful actions, and the corresponding damages suffered by Cendant, are substantial and estimated at in excess of $300 million."

The amount of stock Cendant would have received in 1998 is worth approximately $56 million today and could be worth in excess of $300 million, Cendant says, based on comparable Internet sector IPOs.

Published: July 28, 1999

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