Shares of LaSalle Hotel Properties jumped 13.24% to close at $28.13 on Wednesday, after Pebblebrook Hotel Trust disclosed that it had offered to purchase the company at an implied price of $30.00 per share.
Pebblebrook's shares climbed 3.46% to close at $34.69.
LaSalle rejected the unsolicited all-stock offer, saying it "significantly undervalues" the lodging real estate investment trust and seeks to exploit a "short-term dislocation" in its stock price, which declined sharply in February after the company said a dividend cut was likely. In explaining its rejection of Pebblebrook's offer, LaSalle announced a 50% dividend cut, beginning in the second quarter.
In a note, R.W. Baird analyst Michael Bellisario said the proposed merger makes strategic and financial sense for Pebblebrook, given its premium valuation multiple and the potential for operational upside.
While Pebblebrook is likely the only party with the currency and strategic rationale for a public-to-public deal, Bellisario said, the disclosure of the proposal should generate interest from other hotel investors, especially private equity, which can benefit from the use of leverage.
"We believe LHO shareholders are pushing for change and PEB shareholders are pushing for a combination, which could lead to the management teams formally engaging — but that still appears far off based on LaSalle's intraday response," Bellisario said, noting that LaSalle leadership would likely be more receptive if Pebblebrook returned with a significant cash component.