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Vornado Expected to Boost Offer For Equity Office: Reuters

Reuters
Wednesday, 31 Jan 2007 | 2:29 PM ET

A group led by Vornado Realty Trust is expected to raise its takeover offer for Equity Office Properties Trust, topping a rival $22.4 billion offer from Blackstone Group, sources familiar with the situation told Reuters.

Vornado is expected to submit its new offer for the largest U.S. office landlord before the end of business on Wednesday, sources said. Negotiations, however, could falter and Vornado could still walk away from the table, sources said.

Vornado declined to comment. Equity Office and Blackstone could not be immediately reached for comment.

Last week, private equity firm Blackstone raised its cash bid to $54 a share, up from $48.50 a share.

Vornado's bidding group, which included Barry Sternlicht of Starwood Capital Group Global and Neil Bluhm of Walton Street Capital, previously offered $21.6 billion, or $52 a share, in cash and Vornado stock.

Details of Vornado's new offer could not be determined. Blackstone would receive a $500 million breakup fee if Equity Office terminated their agreement.

"This is the first deal where aggressive competitive bidding has emerged because the parties involved -- Blackstone and the Vornado group -- come from different worlds," said Professor Colin Blaydon of the Center for Private Equity at the Tuck School of Business at Dartmouth.

"Blackstone is a traditional private equity firm; they have assessed the value of each property owned by Equity Office and have a plan for them. Vornado, on the other hand, deals almost exclusively in real estate. They want to integrate Equity Office's properties into their real estate empire," Blaydon said.

Vornado's bidding consortium could change from its original mix of players, sources said. Sternlicht and Bluhm could not be immediately reached for comment.

How High Could Bid Rise?

Vornado would need to beat Blackstone's offer by at least $2 per share to $3 per share to compensate Equity Office shareholders for the longer time it would take to close the deal, traders said.

Equity Office shareholders are scheduled to vote on the Blackstone agreement on Feb. 5 and completion of the deal could take place on or about Feb. 8, subject to shareholder approval.

"They can get $54 (a share) in a week, so to sway EOP to a new offer you have to buy their time. That could get pricey," said one arbitrageur, who does not own shares of Vornado or Equity Office.

Proxy advisory service Institutional Shareholder Services has recommended Equity Office shareholders vote for the Blackstone deal. Including debt, Blackstone's offer was valued at $38.3 billion, which would make it one of the biggest leveraged buyouts ever.

Despite Blackstone's higher offer last week, shares of Equity Office have traded above the $54 per share bid as investors have expected an even sweeter bid to emerge.

Green Street Advisors analyst Michael Knott said the bids for Equity Office could rise to the high $50s per share range. Other analysts, however, said the Vornado team would risk crimping its investment returns if it pushed its bid too high.

"It's getting tight to move it much higher and still have it be a really attractive acquisition for them," said Shawn Campbell, principal with Chicago-based Campbell Asset Management, which sold its shares in Equity Office after the initial bid by Blackstone.

"They can obviously go a lot higher; but at some point these guys are running a public company and you have to look at deals being accretive, and you have other public investors," Campbell said.

Earlier on Wednesday, Equity Office posted higher funds from operations, a key measure of operating performance of real estate investment trusts, on strength in the U.S. office market.

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