The Blackstone Group moved a step closer to winning the biggest buyout ever yesterday after it added nearly $2 billion to its offer for Equity Office Properties Trust and dealt a near-knockout blow to rival Vornado Realty Trust.
Vornado, run by real estate developer Steven Roth, now has less than a week to complete its due diligence and come up with a huge offer that EOP’s board can’t turn down.
Yesterday, EOP, run by Sam Zell, approved a revised bid from Blackstone that gives shareholders $54 a share in cash while promising to close the deal in two weeks.
As it stands now, Blackstone’s offer is valued at about $38.3 billion including debt. Shareholders are slated to vote on the deal on Feb. 5.
Vornado, along with Starwood Capital and Walton Street Capital, submitted a bid last week for $52 a share, financed with 60 percent cash and 40 percent stock. Sources close to the deal said Vornado may have to raise its bid by up to $57 or $58 a share in order to win over EOP’s board because of the stock component and the length of time it will take to close the deal.
Blackstone also negotiated a $500 million break-up fee, up from $200 million, making a new Vornado bid more costly. “People seem to miss the fact that Blackstone’s bid is all cash,” said one analyst. “Zell wants cash today, he doesn’t want a promise in the future with an overvalued currency.”
Equity Office shares rose above the offer price to close at $54.90 signaling that investors bet Vornado will come back with a better offer.
Vornado would likely have to issue 96.7 million shares in order to bid $56 a share, according to Sri Nagarajan, an analyst at RBC Capital Markets.
“Vornado has now been forced into a very tough position, especially if Walton and Starwood drop out because it becomes too expensive,” said one EOP shareholder. “Do they really want to own all these other properties at a really high price.”