Blackstone Group raised its bid for Equity Office Properties Trust to $55.50 per share in cash Tuesday after rival bidder Vornado Realty Trust sweetened its offer in the latest step in a fight to control the top U.S. office landlord.
But Equity Office stock rose above Blackstone's bid of $55.50 a share and was approaching the $56 that Vornado has offered in cash and stock, indicating the bidding could go even higher in the biggest-ever battle for a real estate investment trust (REIT).
Equity Office shareholders are due to vote on Blackstone's offer on Wednesday, meaning that deal could close by Friday.
Vornado's proposal could take months to close -- one reason given by Equity Office for preferring the Blackstone bid.
"I view the current Blackstone offer as superior," said Dean Frankel, portfolio manager at Urdang Capital Management, which owns about 2 million Equity Office shares.
Asked what it would take from Vornado to change his mind: "It's about 50 to 75 cents. That's it."
Frankel added: "I would be surprised if Vornado doesn't come back." Vornado was not immediately available for comment.
Equity Office recommended that its shareholders approve Blackstone's improved all-cash offer over Vornado's stock-and-cash proposal worth roughly $23.24 billion, excluding debt.
While the Blackstone offer is still lower than Vornado's, Equity Office has said it prefers the all-cash Blackstone bid because it has "certainty of value and virtual certainty of closing in the immediate future."
Equity Office and Blackstone also increased the cost of breaking up their agreement, saying Blackstone would receive a $720 million termination fee instead of the $500 million previously planned.
Equity Office shares rose 46 cents to $55.92 on the New York Stock Exchange.
Vornado sweetened its proposal on Feb. 4 by offering to speed up the the cash portion of its offer.
Vornado proposed to acquire Equity Office in a tender offer for up to 55% of the landlord's shares at $56 per share in cash and then acquire the rest of the REIT's shares for Vornado stock in a follow-on merger.
However, Equity Office said Vornado's latest proposal took the form of a "nonbinding letter" that did not include definitive terms.
Given the time delay involved in Vornado's proposal, Equity Office said its board was advised the net present value of Vornado's latest offer is in the range of $54.81 to $55.07 per share.
"There is very little difference between the two offers as far as total value and I think the Equity Office board is correct -- there is some risk to the Vornado offer," said Urdang Capital Management's Frankel.
Analysts said some Equity Office shareholders are dedicated real estate investors whose funds are mandated to invest in REITS and for whom Vornado stock is as attractive as cash given Vornado's track record in real estate.
The biggest institutional shareholder of Equity Office, real estate specialist Cohen & Steers, has voiced a preference for the Vornado offer up until Monday night, but the firm was not immediately available for comment on Tuesday.
However, as things stand, Blackstone's bid has the upper hand for many experts.
Including debt, Blackstone's offer is valued about $39 billion, putting it among the biggest leveraged buyout deals.
Vornado's offer has a total value of $41 billion, including debt and "all potential transaction costs."
The battle for Equity Office involves big personalities in the real estate and private equity industries.
Equity Office was founded more than 30 years ago by real estate magnate Sam Zell. Vornado's offer pitched its chief executive, Steven Roth, up against Blackstone CEO Stephen Schwarzman, whose private equity firm has played a central role in a wave of real estate deals.
REIT analyst firm Green Street Advisors on Tuesday recommended shareholders vote in favor of Blackstone's revised bid, reversing its previous support for Vornado's offer.
"The revised Blackstone bid is economically superior to the most recent Vornado cash/stock offer," analyst Michael Knott said in a note.
"Unless Vornado comes back with a higher bid in the coming hours, we recommend that EOP shareholders vote in favor of the revised Blackstone offer," he said.
But Knott said that for Vornado, time is short, the break-up fee is now much larger, and deal pricing is higher.
"Will they be willing to lob in a bid in the $58-per-share ballpark to give themselves a chance to win, or will they tip their hat to Blackstone and walk away?" he asked. "We would be far from surprised if Vornado throws another punch, but Blackstone may have delivered the coup de grace with its revised bid."