Equity Office rejects Vornado bid

Board of nation's largest office building manager backs Blackstone's $54 all-cash takeover offer.

By Grace Wong, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Equity Office Friday rejected Vornado's sweetened takeover bid, the latest move in a high-stakes battle for the nation's biggest portfolio of office buildings.

The board of Chicago-based Equity Office said it voted to back its recommendation of a rival $54-a-share all-cash offer from Blackstone, a private equity group. If shareholders vote to approve the Blackstone deal, it will be the biggest buyout on record, valued at about $38.3 billion, including debt.

Real estate mogul Sam Zell founded Equity Office Properties Trust, which has been the subject of a heated takeover battle.

Equity Office Properties Trust (Charts) said the shareholder vote on the Blackstone deal, originally scheduled for Monday, likely will be pushed back to Wednesday.

Blackstone Group and Vornado have been battling for control of Equity Office, the real estate investment trust founded by Sam Zell. Equity Office operates a portfolio of nearly 600 buildings across the country, including San Francisco's Ferry Building and 1095 Avenue of the Americas in New York.

The board of Equity Office said it compared both offers, but chose the Blackstone offer since it could close as early as Feb. 9. By contrast, the latest Vornado offer, worth $56 a share in cash and stock, could take four to six months to close, the board said.

"Given this time delay, the board has been advised that the net present value of the Vornado offer is between $54.28 and $54.88 per share, even after taking into account the receipt of dividends in the interim," the company said in a statement.

Vornado (Charts), the real estate investment trust headed by Steve Roth, said Thursday it had raised its bid for Equity Office by $4 to $56 a share. According to the offer, each Equity Office share would convert into $31 in cash and Vornado stock having a value equal to $25.

Blackstone held firm, saying it believed its all-cash offer was superior to the Vornado bid.

Equity Office agreed to be taken private by Blackstone last November for $48.50 a share. The deal generated buzz for being the biggest buyout ever.

But an investor group composed of Vornado, Starwood Capital and Walton Street Capital swooped in on the bidding in January, triggering a bidding war that quickly escalated.

Blackstone's $54 a share offer represents an 11 percent premium to the buyout shop's initial bid.

Equity Office will have to pay Blackstone a $500 million break-up fee if it backs out of the deal.

The recent spate of takeover activity in the real estate sector has helped boost the shares of others in the sector, including Boston Properties (Charts) and Mack-Cali Realty (Charts).

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