NEW YORK (CNNfn) - Avalon Inc., one of the leading East Coast apartment owners, will merge with Bay Apartment Communities Inc. in a stock swap valued at $1.25 billion that will create the largest luxury apartment company in the United States.
Under the deal, Avalon (AVN) will merge into Bay, a real estate investment trust that owns nearly 16,600 apartment homes in the Northern California market. The new entity will retain the Bay (BYA) name and create an East-meets-West REIT leviathan with total market capitalization of $3.7 billion and $2.7 billion in combined equity, including a portfolio of 140 communities in 15 states.
The merger, a tax-free transaction which has already been approved by the boards of both companies, is expected to close in June 1998. It will be accounted for as a purchase of Avalon by Bay Apartment Communities, according to a joint statement by the companies.
Avalon common shareholders will receive 0.7683 shares of Bay Apartment Communities common stock for each share of Avalon stock. Preferred shareholders will receive comparable preferred shares of Bay.
The new company spawned from the deal will pay an annual dividend of $2.04, up 36 cents a share from Bay's current dividend of $1.68.
Richard L. Michaux, Avalon's chairman and chief executive officer, described the merger as a jigsaw-puzzle fit. "Geographically," he said, "we will combine Avalon's established presence in select high barrier-to-entry markets in the Northeast, Mid-Atlantic and Midwestern States with Bay's equally strong presence in select high barrier-to-entry markets of Northern and Southern California and the Pacific Northwest."
Both companies issued to the other options to buy up to 19.9 percent of the other's outstanding common stock under certain circumstances.
Bay Apartment Communities is an integrated multifamily REIT that develops builds and manages luxury apartment homes, including many in Toscana, a partially developed community in Sunnyvale, Cal. Avalon holds an ownership interest in 66 stabilized apartment communities in 12 states.