Equity Office Counterbid in Limbo, Deadline Nears

A potential counter-bid to buy real estate firm Equity Office Properties Trust remained in limbo as one deep-pocketed investor dropped out of the bidding and financing had yet to be secured, sources familiar with the situation said on Tuesday.
Equity Office , the largest owner of U.S. office property after the U.S. government, in November agreed to be bought by private equity firm Blackstone Group for $20 billion.

The agreement marked the largest-ever acquisition of a real estate investment trust and one of the largest leveraged buyouts ever. Including debt, the deal is valued at about $36

Last week, however, an investment team led by real-estate maven Barry Sternlicht of Starwood Capital Group and Neil Bluhm of Walton Street Capital appeared to be close to
making a competing offer, sources said.

Investment fund Cerberus Capital had considered providing financing for the offer, but dropped out after a weekend of back-and-forth negotiations, sources said. It was unclear why
Cerberus cooled off from the bid. Cerberus could come back to the table, but sources said that was unlikely.

Vornado Realty Trust , however, may join the group but talks remain fluid, sources said.

While analysts still expect a second bid to emerge, Sternlicht and Bluhm face time pressure. The bondholders of Equity Office have until Feb. 18 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.

If a rival bid fails to emerge by the Feb. 18 deadline, bondholders may have little choice but to accept the existing offer, said one investment banker who declined to be named. "If you have nothing else firm, you go with what's in hand. That's common sense," said the investment banker.

Cerberus and Equity Office declined to comment. Vornado, Bluhm and Sternlicht could not immediately be reached for comment.