Pebblebrook Hotel Trust and LaSalle Hotel Properties agreed to a merger in which Pebblebrook will acquire its fellow hotel real estate investment trust for a combination of stock and cash, a day after LaSalle said it was terminating an agreement to be acquired by Blackstone Group LP.
Under the terms of the earlier agreement, Blackstone had four business days to propose amendments to its offer, but the private equity giant waived that option, the companies said in a news release.
Pebblebrook plans to exchange either 0.92 of a Pebblebrook common share or $37.80 in cash for each outstanding LaSalle share. A maximum of 30% of the LaSalle shares may be exchanged for cash, and elections of cash will be subject to pro rata cutbacks if holders of more than 30% of the shares elect cash. The LaSalle shares Pebblebrook already owns — about 9.8% of the company's outstanding shares — will be canceled and excluded from the cash election.
The approximately $5.2 billion transaction was approved unanimously by Pebblebrook's board and by all of LaSalle's board except trustee Stuart Scott, who was not in attendance due to a hospitalization.
The combination of the two REITs will form the second-largest lodging REIT by equity market capitalization, a company with 66 hotels, primarily upper-upscale, luxury-independent and collection-branded properties, in or near U.S. urban markets, the companies said. Pebblebrook and LaSalle entered into an agreement to sell three LaSalle properties, with about 1,600 rooms, in connection with the closing of the transaction.
The companies said they anticipate savings related to general and administrative expenses of about $18 million to $20 million annually, driven largely by the elimination of overlapping corporate functions. Pebblebrook Chairman, President and CEO Jon Bortz will continue in those roles upon closing, and CFO Raymond Martz and Chief Investment Officer Thomas Fisher will remain in their positions. The Pebblebrook board will remain unchanged. The news release did not specify a role for any LaSalle executives.
In the release, Bortz said the transaction "represents a terrific value-maximizing opportunity" for both companies' shareholders. LaSalle President and CEO Michael Barnello said the deal delivers immediate cash value to LaSalle shareholders and is valued at a 48% premium to LaSalle's unaffected share price as of March 27, before Pebblebrook's original offer to acquire LaSalle became public.
"This outcome represents the culmination of a thorough strategic alternatives process, which from the beginning has been focused on maximizing value for shareholders," Barnello said, adding that LaSalle is "committed to working closely with Pebblebrook to quickly bring this transaction to closure."
Upon a termination of the merger agreement, under certain circumstances LaSalle will be required to pay a termination fee to Pebblebrook of $112 million — the same amount Blackstone was to receive in the termination of its agreement.
In certain other circumstances, Pebblebrook would be required to pay LaSalle a termination fee of $81 million.
LaSalle formally canceled a Sept. 6 shareholder meeting at which a vote on the Blackstone deal was planned.
Raymond James and BofA Merrill Lynch are serving as financial advisers to Pebblebrook, and Hunton Andrews Kurth LLP is acting as its legal counsel.
Citigroup Global Markets Inc. and Goldman Sachs & Co. LLC are serving as LaSalle's financial advisers, and Goodwin Procter LLP and DLA Piper LLP (US) are acting as its legal counsel.