Embattled real estate portal Homestore.com received a rare bit of good news yesterday when a federal court ruled that the sale of its consumer credit reporting division to Experian could go forward. However, the court also said part of the $130 million in cash it receives from the sale must be held in a trust while Homestore.com sorts out its legal difficulties.
On March 20, Homestore.com said it signed a definitive agreement to sell its consumer credit reporting division ConsumerInfo.com to database marketer Experian for $130 million in cash. The deal, which is subject to regulatory clearance, is expected to close in April.
Homestore.com acquired ConsumerInfo.com in August 2001 as part of its acquisition of iPlace, which at the time was majority owned by marketing services firm MemberWorks Inc. In that deal, MemberWorks received $36 million in Homestore.com stock, which was then valued at $22 per share. But when Homestore.com's shares fell to nearly $2 per share recently, MemberWorks filed a securities fraud lawsuit to prevent the sale of ConsumerInfo.com.
The real estate portal announcing in February that because of accounting errors it overstated advertising revenue from January to September 2001 by $76 million to $82 million prompted the fraud lawsuit. It also said that 2000 revenue was $181.3 million, not the $230 million it previously reported. The company is still calculating how much it will have to restate its 2001 revenue.
In ruling that the sale of ConsumerInfo.com could go forward, Judge Janet Arterton of the U.S. District Court in Connecticut said Homestore.com must put $58 million of the $130 million in trust to cover any possible judgments against Homestore.com in connection with its financial problems. The $58 million is subject to future adjustment, she said.
Homestore.com said it plans to seek the “elimination or reduction” of the trust because it “believes the imposition of a constructive trust on the proceeds of the ConsumerInfo.com transaction is unnecessary.”
ConsumerInfo.com provides consumers with access to their credit histories, scores and related information. The company claims it is the first to provide consumers with online access to their credit histories.