LaSalle, Pebblebrook Move Forward With $5.2B Merger As Blackstone Backs Down
The two Bethesda-based REITs jointly announced Thursday morning they entered into a merger agreement after LaSalle determined Pebblebrook’s latest offer was superior to the previous deal it had reached with Blackstone.
Blackstone waived its right to increase its offer to match Pebblebrook’s, and instead will collect the $112M termination fee agreed to in its deal with LaSalle. Blackstone’s all-cash offer was valued at $4.8B, or $33.50/share.
Pebblebrook had increased its bid several times before ultimately making an offer LaSalle couldn’t refuse. The deal allows LaSalle shareholders to exchange up to 30% of their shares to cash at $37.80/share and transfer the rest to Pebblebrook shares at a 0.92 exchange ratio. LaSalle had rejected several Pebblebrook offers that had offered 20% of the deal in cash before the latest proposal upped it to 30%.
Multiple financial analysts published reports after Pebblebrook's latest offer arguing it was better for LaSalle shareholders than the Blackstone deal. Pebblebrook, which owns 9.8% of LaSalle's common shares, had been pushing other LaSalle shareholders to reject the Blackstone deal.
LaSalle canceled its shareholder meeting on the Blackstone agreement, which had been scheduled for Thursday morning. Pebblebrook will host a conference call with investors Sept. 13 to discuss the merger. The deal, subject to regulatory approvals and votes from both companies' shareholders, is expected to close in Q4.
In the hours after the merger announcement, Pebblebrook's stock has dropped more than 3%, while LaSalle's stock has dropped 0.83%. Green Street Advisors said the merger makes strategic sense given the overlap in the companies' portfolios.
"From a financial perspective, at the current proposed offer price, we continue to view the deal as roughly value neutral to Pebblebrook, and a win for LaSalle shareholders," Green Street's lodging analysis team said in a release.
The combined company will remain in Bethesda and be led by Pebblebrook Chairman Jon Bortz. Bortz previously led LaSalle for 11 years before leaving in 2009 to found Pebblebrook. Pebblebrook Chief Financial Officer Raymond Martz and Chief Investment Officer Thomas Fisher will both remain in their positions following the merger.
The combined portfolio will consist of 66 properties in 16 urban markets. It would be the third-largest lodging REIT as measured by enterprise value. Along with the merger, the companies agreed to sell three of LaSalle's properties totaling 1,600 rooms, but they did not disclose which hotels it would put on the market.
Prior to the merger, Pebblebrook's portfolio consisted of 28 hotels totaling 6,973 rooms and LaSalle owns 41 hotels with 10,400 rooms. The companies own hotels in Boston, New York City, Philadelphia, D.C., Nashville, Atlanta, Miami, Key West, Naples, Chicago, Seattle, Portland, San Francisco, Santa Cruz, Los Angeles and San Diego.
With Pebblebrook's leadership remaining atop the merged company, LaSalle did not announce the fate of its executives and other personnel. But the companies said the merger is expected to create $18M to $20M in cost savings from eliminating overlapping corporate functions.
Citigroup Global Markets and Goldman Sachs have acted as LaSalle's financial advisers through the merger talks, with Goodwin Procter and DLA Piper as its legal counsel. Pebblebrook's financial advisers are Raymond James and BofA Merrill Lynch, and its legal counsel is Hunton Andrews Kurth.