Offer represents a premium of 13 percent over LaSalle’s sale agreement with Blackstone
Pebblebrook Hotel Trust released an offer letter dated June 11, 2018 to the Board of Trustees of LaSalle Hotel Properties in which Pebblebrook submitted a revised merger proposal for a strategic combination with LaSalle. This offer was unanimously approved by Pebblebrook’s Board of Trustees.
The offer for 100 percent of LaSalle’s outstanding common shares represents an implied price of $37.80 per LaSalle common share based on a fixed exchange ratio of 0.92 Pebblebrook common share for each LaSalle common share and Pebblebrook’s 5-day VWAP as of June 8, 2018. The offer provides a premium of 13 percent over the $33.50 per share price in LaSalle’s agreement with Blackstone. Pebblebrook’s offer takes into account the $112 million cost of the termination fee LaSalle agreed to pay to Blackstone.
“The Board of Pebblebrook remains convinced that a strategic combination with LaSalle represents a value-maximizing opportunity for the shareholders of both LaSalle and Pebblebrook,” said Jon E. Bortz, chairman, president, and CEO of Pebblebrook Hotel Trust. “The performance of both LaSalle’s and Pebblebrook’s shares since LaSalle’s May 21st announcement of its sale agreement with Blackstone at $33.50 per share is evidence that the investment community and both LaSalle’s and Pebblebrook’s shareholders wholeheartedly agree with us. In fact, we are not aware of any listed equity REIT M&A transactions since 2006 in which a target has agreed to a cash offer at a discount of greater than 1 percent compared to a competing share or share/cash offer.”
Pebblebrook’s offer provides LaSalle’s common shareholders with the option for each share to elect to receive $37.80 per share in cash instead of Pebblebrook shares, subject to a cap of 20 percent of LaSalle shares receiving cash and customary pro ration if the number of LaSalle holders electing to receive cash instead of stock is oversubscribed. The per share cash amount is fixed at $37.80 and was calculated by multiplying the fixed exchange ratio of 0.92 and Pebblebrook’s 5-day VWAP of $41.09 as of June 8, 2018.
“Our offer is without a doubt a superior proposal to the sale agreement LaSalle executed with Blackstone,” Bortz continued. “It provides both immediate and long-term value for LaSalle shareholders who will be able to benefit from the improving industry fundamentals in this already strong travel environment. In addition, the stock consideration offers LaSalle’s shareholders a more attractive opportunity from a tax perspective, and for those shareholders who want cash, the market has demonstrated that there is substantial liquidity at prices significantly above the Blackstone offer. We are encouraged by the overwhelmingly positive reaction from shareholders of both companies who recognize the upside potential of owning shares in a combined entity that will benefit from the growth and the meaningful operational and investment synergies that would result from bringing these two highly similar companies together. We strongly encourage LaSalle’s Board of Trustees to accept this compelling higher offer and its unique opportunity to create the industry leader that shareholders so clearly desire.”Raymond James and BofA Merrill Lynch are acting as financial advisors, Hunton Andrews Kurth LLP is acting as legal counsel and Okapi Partners LLC is serving as information agent to Pebblebrook in connection with the proposed transaction.
LaSalle confirmed that it received a proposal from Pebblebrook on June 11, 2018 to acquire LaSalle in a transaction with consideration of 0.92 common shares of Pebblebrook per common share of LaSalle, with the option for LaSalle shareholders to elect to receive cash up to a maximum of 20 percent in aggregate of the consideration, subject to pro ration.
As previously announced on May 21, 2018, LaSalle entered into a definitive agreement with affiliates of Blackstone Real Estate Partners VIII, under which Blackstone would acquire all outstanding common shares of beneficial interest of LaSalle for $33.50 per share in an all-cash transaction valued at $4.8 billion (the “Blackstone Merger Agreement”).
In accordance with the terms of the Blackstone Merger Agreement, and in consultation with its financial and legal advisors, the LaSalle Board of Trustees will carefully review Pebblebrook’s proposal to determine the course of action that it believes is in the best interest of the company’s shareholders. The board has not made any determination as to whether Pebblebrook’s proposal constitutes, or could reasonably be expected to lead to, a superior proposal under the terms of the Blackstone Merger Agreement. The board expects to respond to Pebblebrook’s proposal in due course.
LaSalle advised its shareholders to take no action at this time.
Citigroup Global Markets Inc. and Goldman Sachs & Co. LLC are acting as financial advisors to LaSalle and Goodwin Procter LLP and DLA Piper LLP (US) are acting as legal counsel.
The full text of Pebblebrook’s letter to LaSalle dated June 11, 2018 follows. A presentation with additional details regarding Pebblebrook’s offer is available at investor.pebblebrookhotels.com.
Letter from Pebblebrook to LaSalle dated June 11, 2018
June 11, 2018
Board of Trustees
LaSalle Hotel Properties
7550 Wisconsin Avenue, 10th Floor
Bethesda, MD 20814
Ladies and Gentlemen,
The Board of Trustees of Pebblebrook Hotel Trust remains highly focused on a strategic combination of our company with LaSalle Hotel Properties. We are providing this revised higher offer today and urge you to objectively consider the merits and benefits to LaSalle shareholders of the strategic combination and accept our offer.
Our acquisition proposal is superior, by far, to the agreement LaSalle entered into with Blackstone. Under our proposal, LaSalle shareholders will receive consideration of substantially greater value today and will be able to participate in the value creation of the combined company in the future.
Offer and Form of Consideration: Our offer of a combination of shares and cash equals an implied price of $37.801 based on a fixed exchange ratio of 0.92 Pebblebrook common share for each LaSalle common share. LaSalle shareholders will have the option for each share they own to elect either a) a fixed amount of $37.80 in cash; or b) a fixed exchange ratio of 0.92 Pebblebrook share. A maximum of 20% of the outstanding LaSalle shares will receive cash and those electing cash will be subject to pro rata cutbacks in the event more than 20% of LaSalle shares elect cash. Our proposal takes into account the $112 million termination fee agreed to in the current agreement with Blackstone.
- Our $37.801 per share offer represents a premium of 13% to the current Blackstone agreement of $33.50 per share.
Our offer clearly represents a superior value proposition to LaSalle shareholders and we urge you to exercise your fiduciary duty and termination rights and enter into a merger agreement with Pebblebrook to allow LaSalle shareholders the opportunity to approve our higher offer. We are not aware of any listed equity REIT M&A transaction since 2006 in which a target has agreed to a cash offer at a discount of greater than 1% compared to a competing share or share and cash offer.2
1Based on Pebblebrook’s 5-day VWAP of $41.09 as of June 8, 2018.
2The only listed equity REIT M&A transaction since 2006 in which a lower cash offer was accepted compared to a competing stock and cash offer was Blackstone’s acquisition of Equity Office Properties in 2007; Blackstone’s offer represented a less than 1% discount to the competing stock/cash offer.
Pebblebrook’s track record of success as a public company and our significant knowledge of LaSalle’s assets and markets make us the perfect and obvious strategic partner for LaSalle. Our plan is to retain the vast majority of LaSalle’s non-executive employees and grow the value of the combined entity. LaSalle shareholders and employees will both have an opportunity to benefit from the materially higher current value of our proposal compared to the Blackstone price and the ability to participate in the future upside of our combined world-class portfolio.We are prepared to enter into a merger agreement essentially identical to the Blackstone agreement adapted merely to reflect our proposed merger terms. The key terms of our proposed agreement are set forth in the attached Exhibit A, and we are simultaneously sending you the full merger agreement under separate cover.
It is clear that the value of our offer is substantially greater than the value of the Blackstone agreement. It is also clear that LaSalle shareholders expect to receive far more value for their shares than Blackstone’s agreement will provide given that LaSalle shares have been trading at a significant premium to the $33.50 per share offer price since the Blackstone deal was announced. In addition, any shareholders who wanted cash at $33.50 per share have likely already received it as over 70 million of LaSalle’s outstanding shares have traded since the Blackstone deal announcement, and all of them at prices above $33.50 per share. Therefore, we request that you enter into discussions with us to finalize a merger agreement so that LaSalle shareholders can realize far greater value for their shares.
Jon E. Bortz
Chairman, President & CEO
Pebblebrook Hotel Trust
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Source: Pebblebrook Hotel Trust and LaSalle Hotel Properties