Blackstone to buy LaSalle Hotel in US$4.8b agreement

[NEW YORK] Three days after agreeing to sell off the last of its Hilton stake, Blackstone is buying another hotel company.

Blackstone Group LP agreed to acquire luxury hotel owner LaSalle Hotel Properties in an all-cash transaction that values LaSalle at US$33.50 a share, or US$4.8 billion including debt, the companies said in a statement Monday. The deal follows Blackstone’s announcement on Friday that it will sell the last of its Hilton Worldwide Holdings Inc shares.

The agreement with Blackstone is intended to thwart a would-be merger between Bethesda, Maryland-based LaSalle, the owner of 41 luxury hotels, and smaller rival Pebblebrook Hotel Trust. Blackstone’s offer represents a premium of almost 35 per cent above LaSalle’s share price on March 27, the day before Pebblebrook first announced a proposed all-stock deal for LaSalle.

Pebblebrook, which announced a higher bid after Blackstone’s announcement, is seeking to combine with LaSalle to create a portfolio of upscale hotels and compete more formidably with real estate investment trusts such as Host Hotels & Resorts Inc and Hilton spinoff Park Hotels & Resorts Inc. LaSalle and its advisers contacted 20 potential buyers and half of them executed confidentiality agreements, leading to negotiations over price and terms, Chairman Stuart L Scott said in the statement.

“After careful consideration of multiple proposals received, the board determined that this transaction represents the most compelling opportunity for LaSalle’s shareholders, delivering a significant premium with immediate and certain cash value,” Mr Scott said of the Blackstone agreement. Pebblebrook’s latest bid was among the proposals, according to people with knowledge of the matter.

What Blackstone is offering is more than double the 14.7 per cent median premium in US REIT transactions of more than US$1 billion over over the past five years, according to Goldman Sachs Group Inc data.

Before the Blackstone deal was announced, Pebblebrook had publicly made three proposals for LaSalle. On Monday, Pebblebrook confirmed in a statement that it’s proposing to exchange 0.92 share for each LaSalle common share, with the option for LaSalle shareholders to receive cash of up to 20 per cent. That implies an offer price of US$36.52 per LaSalle common share, based on trading Monday morning.

“Our offer is substantially superior to the merger agreement that LaSalle has reached with Blackstone,” Jon Bortz, Pebblebrook’s chairman and chief executive officer, said in the statement. “We are disappointed that LaSalle’s board of trustees has chosen not to pursue the unique opportunity that we presented.”

A LaSalle representative declined to comment on Pebblebrook’s latest offer.

When LaSalle previously rejected Pebblebrook, it described its potential suitor’s stock as “overvalued” and said it had “significant concerns” that Pebblebrook’s share price reflected “its overly optimistic growth targets.” LaSalle also said that it was not confident Pebblebrook would meet its guidance.

Pebblebrook hasn’t missed its guidance since early 2012, according to data compiled by Bloomberg.

It’s unclear how LaSalle’s investors, including HG Vora, which owns 9.1 per cent of the hotel company’s stock, will view the Blackstone transaction, which requires support from two-thirds of the shareholder base to proceed. HG Vora last week urged the company’s trustees to negotiate final structural terms with Pebblebrook, specifically singling out the mix of cash and stock, which had been a point of contention.

The breakup fee on the deal with Blackstone, should LaSalle choose to terminate it, is US$112 million, according to a LaSalle regulatory filing. Should Blackstone choose to walk away, the reverse breakup fee is US$336 million.

The acquisition is scheduled for completion in the third quarter.

BLOOMBERG