We Have a REIT Bidding War

Biz BriefsThe bidding war for Equity Office Properties Trust, the nation’s largest office owner and manager, has heated up. Last week Vornado Realty Trust of Paramus raised its offer to buy the Chicago-based commercial landlord to $56 per share, or $41 billion, topping a $54 per share offer from an affiliate of its rival, The Blackstone Group, a private equity firm in New York City.

The latest bid, which consists of $31 in cash and $25 in common stock, is $4 higher than the initial offer in cash and stock that Vornado, along with partners Starwood Capital and Walton Street Capital, made Jan. 17. Blackstone responded Jan. 25 with a $54 per share proposal, upping its original all-cash bid of $48.50, which Equity had accepted Nov. 19. It also increased the breakup fee to $500 million from $200 million, raising the stakes if Equity should decide to end the agreement. The office landlord is scheduled to vote on the Blackstone proposal in a shareholder meeting today.

Either offer would constitute the largest leveraged buyout in history, surpassing the $33 billion acquisition of Nashville health care services operator HCA last year, according to Paul Adornato, senior REIT analyst at BMO Capital Markets in New York City. HCA was sold to a group including Bain Capital.

Despite Vornado’s higher offer, Blackstone could still have the advantage, says Adornato, explaining that in addition to a hefty termination fee, Equity must also consider that Vornado’s part-stock bid is riskier than Blackstone’s all-cash offer. Also, because of the stock involved, the Vornado proposal would require approval from that firm’s shareholders. “The Blackstone proposal, in contrast, would be able to close very quickly and requires no approval from any shareholders,” he says.