Poetic Business Moguls Compete in Bidding War

Feb. 8, 2007 — -- So how did poetry kick off one of the largest acquisition battles in Wall Street history?

Simple. The major players in a massive struggle for the largest U.S. commercial real estate company felt inspired to write.

"Roses are red, violets are blue; I hear a rumor, is it true?"

The rhythm may not be perfect, but real estate mogul Samuel Zell's intention in this e-mail obtained by The New York Times is only too clear. He was fishing for a response from shopping mall maestro Steven Roth of New Jersey and his company, Vornado.

Private equity buyout giant the Blackstone Group, based in Manhattan, N.Y., had already confirmed one offer for Zell's Equity Office Properties, worth $48.50 a share.

Zell wanted more, and had heard that Vornado's Roth was interested. He was.

"Roses are red, violets are blue. I love you Sam, our bid is 52," Roth replied to Zell in his own e-mail, confirming a higher bid of $52 a share.

But it was not enough to secure the acquisition of Zell's firm, which owns large tracts of office space in Atlanta, New York and Chicago.

Blackstone Group's high-profile CEO launched a second, higher bid of $55.50 a share, worth $39.2 billion in total. Blackstone's second bid was enough to clinch it, but that's not to say that the poetry was not appreciated.

Blackstone's final offer of $55.50 per share was a 15 percent increase from its first bid in November, when the private equity firm offered $48.50 per share.

Blackstone the Real Estate Winner

As a result of the bid entered Tuesday, Blackstone will become a landlord overseeing one of the nation's most impressive commercial real estate portfolios, including WorldWide Plaza in Manhattan, the Civic Opera building in Chicago, and Columbia Center, Seattle's tallest tower.

"We are pleased to have secured what we believe is a compelling investment for Blackstone investors, and gratified by the overwhelming support of EOP [Equity Office Properties] shareholders," said Blackstone spokesman John Ford.

Vornado, which sweetened its bid twice, ultimately offering $23.2 billion in cash and stock, bowed out hours before Equity Office shareholders overwhelmingly approved the Blackstone bid.

The Paramus, N.J.-based real estate investment trust said the premium it would have to pay to top Blackstone's offer wouldn't be in the interest of its shareholders.

"We thought $48.50 [per share] was a very good price," said Richard Kincaid, chief executive officer of Chicago-based Equity Office. "And when you start to get to $55.50 [per share] and someone has to top that cash offer that closes in a couple of days with a stock and cash mix. … I think it got to the point where they realized it just wasn't enough profit."

Blackstone's acquisition, which it valued at $39.2 billion including assumed debt, is scheduled to close Friday. Equity Office had about $16.5 billion in debt reported as of Sept. 30.

Research firm Dealogic says that figure would make it the largest private equity buyout in history when debt is included in the valuation.

Excluding debt, the deal would be the second-largest private equity buyout. The largest was the $25.1 billion acquisition of RJR Nabisco Inc. in 1988 by the investment group Kohlberg Kravis Roberts & Co.>

While Blackstone's offer was favored by investors and shareholders -- more than 92 percent of ballots cast during the vote supported the acquisition -- experts said the private equity firm might have spent too much.

'A Huge Premium'

"We think the price is probably too high," said Morningstar analyst Arthur Oduma, who called Blackstone's bid superior to Vornado's. "We don't know why anyone would pay such a huge premium, but there are certain considerations. … In just one fell swoop, you get a portfolio that took many years to build up."

The Blackstone deal had the support of Equity Office trustees, even though it was less than the $56 per share offered by Vornado.

That bid had been deemed too risky by Chicago-based Equity Office because of the length of time it would take to complete and the need for Vornado shareholder approval.

In January, Vornado, joined by Starwood Capital Group and Walton Street Capital LLC, topped Blackstone's initial bid and offered Equity Office $52 per share.

Blackstone fought back with its $54-per-share bid, and Vornado sweetened its bid twice before retreating Wednesday.

Kincaid said he expected that Blackstone's increased bid would force the firm to sell more Equity Office buildings. He also expected higher rents for tenants.

"We're incredibly proud of all the hard work that's gone into building Equity Office," Kincaid said. "We built a phenomenal company."

Citing unnamed sources, the Wall Street Journal reported Wednesday that Blackstone had already arranged to sell several New York buildings to a private landlord for $7 billion. Blackstone officials declined to comment on the report.

Equity Office's Beginnings

Equity Office was founded in 1976 by the company's now-chairman Sam Zell. Since its initial public offering in 1997, the company has nearly quadrupled in size to become the nation's largest publicly traded owner and manager of commercial office space.

Zell, who was ranked No. 52 on Forbes' most recent list of the wealthiest Americans, stands to make about $1.1 billion in the deal, according to a review of regulatory documents reviewed by The Associated Press.

Equity Office owns more than 580 buildings, totaling more than 105 million square feet nationwide.

Vornado shares traded at an all-time high Wednesday, climbing $8.75, or 6.9 percent, to end at $135.75 on the New York Stock Exchange. Equity Office shares fell 60 cents to close at $55.45.

The AP contributed to this report.