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Blackstone Wins Tug-of-War for Equity

By the time that a formal Equity Office Properties shareholders’ meeting convened in Chicago today, the takeover by Blackstone Group LP was pretty much a done deal. Earlier that same morning, rival suitor Vornado Realty Trust and its allies had agreed that the high-stakes game was no longer worth the candle, whereupon the bidding team announced their withdrawal from the heated contest to win the nation’s largest office landlord.

The meeting started on time, and within a matter of minutes the result was confirmed. Blackstone, the initial suitor back in November, had prevailed. Of the shares voted, about 91% approved the takeover by Blackstone, representing an affirmative vote by about 71% of all outstanding shares.

For a yes vote, Equity shareholders are receiving $55.50 per share, or $23.2 billion all together. Along with the assumption of roughly $16 billion of debt held by Equity, the entire deal amounts to more than $39 billion, and it’s widely viewed as the largest leveraged buyout (or LBO) in U.S. history.

The bidding war for EOP began in earnest in January, after Vornado, leading a group that also included Starwood Capital and Walton Street Capital, made a $52 per share cash-and-stock counteroffer to Blackstone’s initial offer of $48.50 per share. By early February, both bidders had upped the ante further, but eventually Blackstone’s $55.50 per share all-cash bid won the day over Vornado’s $56 per share cash-and-stock offer.

During a press conference following the vote, Equity CEO Richard Kincaid said he thought the deciding factor was the all-cash nature of the winning bid.

“It maximized the certainty that the deal would close this week,” he noted. He wasn’t surprised, he added, that Vornado decided to call it quits either. “The hurdle was just too high. There wouldn’t have been enough profit in it to make a higher bid worthwhile.”

For its efforts, Blackstone is getting whole or partial interests in 543 office buildings nationwide, totaling about 103.1 million square feet. It’s widely thought that Blackstone – which holds around 10% of an equity stake in the deal – will begin selling off parts of the vast portfolio to begin paying down debt.

“There’s a lot of demand for office properties in most markets now, and there’s upward pressure on rents in most places,” said Kincaid. “Because they paid more than they anticipated, they might have to sell more properties than they anticipated, but they’ll do well.”

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