U.S. News

Vornado Makes Joint Bid For Equity Office of $52 a Share


Vornado Realty Trustand two real estate partners offered $52 a share for Equity Office Properties Trust, which has already agreed to be acquired by Blackstone Group for $48.50 a share in cash.

The offer had been expected after CNBC's David Faber reported Wednesday afternoon that Vornado had decided to join a rival bidding group for Equity Office.  The $52 per share offer worth $21.6 billion would consist of 60% cash and 40% Vornado stock, parties said.

The group includes real-estate maven Barry Sternlicht of Starwood Capital Group Global and Neil Bluhm of WaltonStreet Capital. The offer would consist of 60% in cash and 40% in Vornado stock, the parties said.

In November, Equity Office agreed to be acquired by private equity firm Blackstone Group for $20 billion, or $48.50 a share, in the largest-ever acquisition of a real estate investment trust. Including debt, that deal is valued at $36 billion. On a per share basis, the new offer is 7.2% higher than the Blackstone agreement.

Faber Report

Given the timing advantage of that deal and the fact that Blackstone is paying cash and has the right to match, it's far from clear the Vornado group will be able to win Equity Office's hand, Faber reported earlier.

Speculation had been building for weeks that a bid to rival Blackstone's would emerge. The bid was accepted by Equity Office's chairman Sam Zell with the conditions of a very low break up fee and the ability of banks financing Blackstone's offer to do so for any rival bidders.

A vote on the Backstone deal is set for Feb. 5, giving it a sizeable time advantage over Vornado. But with a Vornado bid, Blackstone may be forced to raise its offer, Faber said.

Spate of Mergers

The bidding war for Equity Office continues a spate of mergers in the real estate sector over the past year. Global real estate mergers reached a record $416.7 billion in 2006, up 67% on 2005, according to data provider Dealogic.

Under the new offer, Vornado said it would acquire and retain about half of Equity Office's assets in major markets on the east and west coasts, while Starwood and Walton would acquire the remaining assets.    

The offer just one day before Equity Office bondholders must decide whether to tender their holdings under a compromise deal reached last week with the real estate company.

That compromise, which was supported by large bondholders such as American International Group, eliminated a crucial hurdle for the Blackstone deal. Equity Office must amend debt covenants and eliminate $8.4 billion in debt ahead of the buyout by Blackstone.
Cash and Stock Deal

Vornado said it would fund the deal with about $13.4 billion of equity, consisting of Vornado shares and units valued at $10.6 billion and about $2.8 billion in cash provided by equity contributions and $25.8 billion in debt.

It said it had funding from Lehman Brothers, JPMorgan, Barclays Capital, UBS Securities and RBS Greenwich Capital. The offer is subject to a review of Equity Office's financial records, Vornado said.

"We have a lot of questions we have to get answered before we know whether the $52 is real; whether the stock portion of the deal is collared, or to some extent investors are given some protection in terms of the value of Vornado shares not declining," Orrico said.

Although Equity Office was prevented from soliciting bids after its agreement with Blackstone, it is allowed to respond to unsolicited offers. Blackstone also would have the right to match any new offer.

Vornado expects the deal to boost its funds from operations per share. In also would sell or co-venture selected assets, but additional details were not immediately available.