Blackstone Group has won the war for LaSalle Hotel Properties, but rival Pebblebrook Hotel Trust isn’t giving up the fight.
Luxury-hotel owner LaSalle agreed to be bought by Blackstone for $33.50 a share in cash, or $4.8 billion including debt. After the deal was announced, Pebblebrook revealed it had made a fourth proposal - which was among the bids rejected by LaSalle, according to people with knowledge of the matter - that places a higher value on the company, $36.55 a share based on Pebblebrook’s current stock price.
Pebblebrook has spent the past two months in pursuit of LaSalle, whose high-end hotels include the Westin Copley Place in Boston, the Park Central New York and the Viceroy Santa Monica. Pebblebrook chief executive Jon Bortz called his company’s proposal - about 35 per cent higher than LaSalle’s closing price on March 26, the day before the first all-stock offer was announced - “substantially superior” to the take-private agreement reached with Blackstone.
But LaSalle’s board, after considering offers from 20 potential buyers, instead chose the sure bet of a cash payday over combining with a publicly traded suitor whose stock LaSalle had described as “overvalued”.
“Cash is king,” Robert W Baird & Co analysts led by Michael Bellisario said in a note to clients after the Blackstone deal was announced.
It’s unclear where investors stand. The approval of stockholders representing two-thirds of shares is required for the Blackstone deal to proceed. HG Vora, which owns 9.1 per cent of LaSalle’s stock, last week urged the company’s trustees to negotiate final structural terms with Pebblebrook, specifically singling out the mix of cash and stock, which had been a point of contention.
Pebblebrook’s current offer involves exchanging 0.92 share of its own stock for each LaSalle common share, with the option for LaSalle investors to receive cash of up to 20 per cent.
“After careful consideration of multiple proposals received, the board determined that this transaction represents the most compelling opportunity for LaSalle’s shareholders, delivering a significant premium with immediate and certain cash value,” LaSalle Chairman Stuart Scott said of the Blackstone offer in Monday’s statement.
A LaSalle representative declined to comment on Pebblebrook’s latest bid. Pebblebrook owned about 4.8 per cent of LaSalle’s shares as of March 31, according to a regulatory filing.
A merger of the two REITs, both based in Maryland, and founded by Mr Bortz, would have combined LaSalle’s 41 hotels with 28 owned by Pebblebrook, including the Sir Francis Drake in San Francisco, W hotels in Boston and Los Angeles, and the Mondrian Hotel in West Hollywood, California. Pebblebrook is also the smaller company by stock-market value, at about $2.7bn, compared with LaSalle’s $3.7bn.
LaSalle jumped 5.4 percent to $33.61 on Monday. Pebblebrook rose 1.9 per cent to $39.73.
What Blackstone is offering is more than double the 14.7 per cent median premium in U.S. REIT transactions of more than $1bn over over the past five years, according to Goldman Sachs data.
The breakup fee on the deal with Blackstone, should LaSalle choose to terminate it, is $112 million, according to a LaSalle regulatory filing. Should Blackstone choose to walk away, the reverse breakup fee is $336m.
The acquisition is scheduled for completion in the third quarter.
Evercore ISI analysts Rich Hightower and Steve Sakwa said in a note Monday that if Blackstone ultimately prevails, they “fear it may be a regrettable outcome for investors hoping for additional public pair-ups.” The analysts added that investors believed that if a Pebblebrook-LaSalle combination were to happen, it could spur mergers among their rivals.
“On the other hand, if Blackstone wins with its seemingly omnipresent, at-the-ready cash offer, REIT management teams can rest a little easier knowing that investors lack a cudgel (er, genuine precedent) with which to argue for further sector consolidation,” Mr Hightower and Mr Sakwa wrote.
LaSalle represents the second REIT takeover deal in recent weeks involving Blackstone’s eighth flagship property fund, known as Blackstone Real Estate Partners VIII. Earlier this month, the firm said it would acquire warehouse owner Gramercy Property Trust for $7.6bn including debt.