Equity/Blackstone/Vornado Saga Is Instructive

The Equity/Blackstone/Vornado triangle gets more and more interesting. Blackstone says it will not make a further counteroffer to purchase Equity Office Property Trust, in response to Vornado Realty Trust submitting a binding $41-billion offer on Jan. 31 to buy EOP. The new offer by Vornado is for $56 per share, $2 per share higher than Blackston'e amended offer of $54 per share, which worked out to be about $38.3 billion. Blackstone responded this morning to Vornado’s announcement by saying it has submitted its final offer.

"We do not believe that the true value of Vornado's proposal is anywhere near $56 per share and Blackstone has no intention of increasing its all cash price,” a Blackstone spokesman told business reporters. “The true value of Vornado's offer should reflect a discount for stock, the three to four month time delay before receiving it and the risk of VNO's share price declining below $115 per share. When combined with the risk to EOP shareholders that VNO shareholders could vote the deal down for any reason, we strongly believe that our binding agreement with EOP is clearly superior.” Though the EOP board said it would consider Vornado’s Jan. 31 offer, the EOP board approved Blackstone’s amended submittal of $54 per share on Jan. 25, along with a $500 million break-up fee if the Chicago-based REIT does not agree to the Blackstone acquisition by Feb. 5. In Blackstone’s most recent offer in late January, it said it would pay about $38.3 billion for EOP, in a transaction that some investors have favored because it’s a cash offer, not including stock. In today’s statement, Vornado said its offer of $56 per share includes $31 in cash and Vornado shares equal to $25, as long as its stock price remains between $115 to $135 per share.

At this point you're asking yourself, "so what?" The reason this is interesting, and instructional, is because these companies recognize the value of holding real estate. They are in a bidding war. And though you may look at the numbers and say this is just the big boys showing off, it is instructive for this reason -- the advantages of investment real estate are often far more signficant at any level than other investment tools. Whether it is hundreds of office properties being argued over, or a half dozen 4-families, or even one twin-single or duplex, the value and the returns are there.