Will Equity Office Properties shareholders be wooed away from an all-cash deal with The Blackstone Group by $56 a share?
The answer comes this week, when shareholders will end what has become one of the most heated bidding wars in REIT history. The extraordinary prices being offered for the company reflect the new fever pitch among private equity players digging into the institutional real estate market.
Equity Office itself has made up its mind — the board of trustees of the company, the country's largest real estate investment trust, unanimously voted Friday to support the cash bid of $54 a share by Blackstone, despite the renewed efforts of Dove Partners to gain control of Equity Office with $56 per share, or roughly $40 billion in cash and stock. The deal will mark the largest leveraged buyout in history, regardless of the victor.
Dove Partners — an ironically named partnership between Vornado Realty Trust and private equity giants Starwood Capital and Walton Street Capital — last week formally offered its $56 per share in cash and stock, months after chairman Steven Roth first expressed interest in buying Equity Office and was beaten to the punch by Blackstone. Blackstone, for its part, originally offered $48.50 a share in the fall and only raised its bid when word of Vornado's push hit the market. According to Equity Office, however, Vornado's deal presents too much of a closing risk and will take several months to close, unlike the Blackstone deal, which could conceivably close in the next week. Accepting Vornado's bid would also require waiting for approval from Vornado's shareholders.
Vornado, of course, has made its money on taking risks. The private REIT owns major retail and office properties throughout the country, operates the retail REIT Alexander's Inc., and most recently bought a flagship Filene's Basement in Boston for $100 million. It's not new to private equity deals — a few years back it partnered with Bain Capital and Kohlberg Kravis Roberts to swallow up Toys ‘R' Us — and is known for ruthless investment policies and a highly profitable portfolio. If it does take down Equity Office, it would gain ownership of the premier office portfolio in the country. According to the company, it would consider selling up to $20 billion of the Equity Office properties within a year of closing the deal.The Equity Office shareholder vote on the Blackstone bid, which was originally scheduled for today, will most likely be postponed until Wednesday, according to Equity Office. On Friday, shares of Equity Office closed up 0.42 percent to $55.38 while shares of Vornado closed down 0.31 percent to $125.35.
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