Rounded Rectangle: Rounded Rectangle: PLOT/PRESENTATION

The Battle for Equity Office Properties.

- Tim Lawor gives a small snapshot into the battle between Blackstone and Vornada Realty Trust.

This Friday’s Wall Street Journal had three articles about the current battle between Blackstone and Vornada for Equity Office Properties. Blackstone made its first cash offering in November and Vornada countered in early January with $52 a share, it has been a battle ever since. It is also a great example of the how different buyout strategies can influence shareholders decisions.

Currently there are two offers on the table. Blackstone is offering $54 a share in an all cash offering, and Vornada is offering $56 per share. I know you are thinking that is only $1, but in total it is a difference of almost one billion dollars! Blackstone’s total offer is 22.3 billion and Vornada is 23.24 billion. The difference is that Vornada’s offer is only 55% cash, and the rest is in Vornada stock. Blackstone is adamant that their offer is superior because it is all cash, but Vornada is a serious offer, and given its stock performance of the past few years, a good offer as well. If you ask Blackstone however, they believe Vornada needed to offer in the vicinity of $57 a share, but if you ask EOP’s biggest shareholder, Cohen & Steers Inc, Vornada’s offer is already superior to Blackstone.

On Monday, EOP shareholders are meeting to consider Blackstone’s offer, and it seems like Blackstone will come out on top. However it may be too early to tell. Shareholders might want to consider not just the details of the offering, but what the companies are going to do after completing the acquisition. Blackstone is a private equity firm looking to hold on to these assets just like its huge portfolio of other companies. Vornada is a realty trust, and a huge percentage of EOP shareholders own Vornada stock as well. In the past five years Vornada has out performed its peer group, and giving their management control of EOP portfolio could vie well for shareholders.

The other side of this battle is going on in the credit markets. EOP bondholders are all for Blackstone in this battle. Blackstone included a bond tender offer in their bid, which would mean bond holders would get paid the par value and the present value of coupon payments. If Vornada wins they will add debt to EOP’s books and driving down the value of bonds by increasing the company’s credit risk. If the bond holders were making the decision it would be obvious, but as are the rules in business. It is the shareholders decision, and this week we should discover the outcome! This is a very interesting case to look into deeper.