Battle for biggest ever buyout explodes into life(2)

The much-anticipated bidding war for Equity Office Properties may finally be underway, after a group of specialist real estate investors formally launched a $37.6 billion (€29.0 billion) counter-bid for the US commercial property group.

Equity Office said in a statement that Dove Parent, a consortium comprising US real estate investment groups Vornado Realty Trust, Starwood Capital and Walton Street Capital, has made an “unsolicited” $52 per share offer for the business.

The bid, which would be worth about $37.6 billion including debt, is payable 60 percent in cash and 40 percent in Vornado Realty Trust shares. Vornado, chaired by Steven Roth, is proposing to acquire about half of the Equity Office portfolio, with Starwood and Walton Street dividing up the rest.

The bid seems to trump an earlier all-cash offer from private equity firm The Blackstone Group at $48.50 per share or $36 billion in total, which was accepted by the Equity Office board in November – already set to be the largest leveraged buyout on record.

However, sources close to the deal stressed that the rival bid was still at a very indicative stage. The offer letter sent by Dove to Equity Office gives no explanation as to how the Vornado shares will be valued, and appears to suggest that the financing package has not yet been finalised. However, the three firms said they and their bankers – Lehman Brothers, JP Morgan, Barclays Capital, UBS and RBS Greenwich Capital – are “highly confident that sufficient debt financing will be available for this transaction”.

Blackstone will now await a response from Equity Office, before considering whether or not to raise its own offer. Any improved bid would mean the firm runs the risk of becoming embroiled in a bidding war.

Blackstone believes the rival consortium’s offer, which is payable 60% in cash and 40% in Vornado Realty Trust shares, is inherently more risky. A spokesman said: “A tentative proposal relying upon the potential issuance many months from now of more than $10 billion in stock trading at near record prices is inferior, and carries vastly more risk than Blackstone’s all-cash deal closing in approximately two weeks.” Blackstone would be entitled to a break fee of $200 million if Equity Office goes to a rival group, under the terms of the original deal.

Equity Office shares closed at $50.94, up $1.09.