LaSalle Hotel Properties rejected a proposal from Pebblebrook Hotel Trust that would have merged the two hotel real estate investment trusts in a stock-for-stock transaction.
In correspondence released by Pebblebrook, LaSalle executives on March 22 told Pebblebrook Chairman, President and CEO Jon Bortz that their board unanimously rejected the offer based on both price and the mix of consideration Pebblebrook was offering. Pebblebrook said in a news release that it is prepared to negotiate on both points.
Pebblebrook proposed the deal in a March 6 letter, noting that it accumulated a 4.8% position in LaSalle's common stock through open-market purchases, and arguing that the two companies have similar asset quality, geography, operators, brands and overall approach to asset management. A combination would create an industry leader with a portfolio of upscale and luxury independent and branded hotels and resorts in or near U.S. urban markets, generate strong cash flow and provide for a more stable dividend, the company said.
LaSalle said in a separate news release that Pebblebrook proposed to issue 0.8655 share of its common stock for each common share of LaSalle stock.
Pebblebrook said the proposal represented an implied merger price of $30.00 per LaSalle common share based on the proposed fixed-exchange ratio and Pebblebrook's trailing 10-day volume-weighted average price as of March 5. As of the close on March 27, the implied merger price was $29.95 per LaSalle common share, representing a premium of 17.4% to LaSalle's trailing 10-day volume-weighted average price on the same date. Pebblebrook would remain as the surviving ultimate parent entity in the proposed transaction, in which it would issue new shares to LaSalle shareholders.
Bortz said in the news release that shareholders in both REITs have long encouraged the companies to explore a combination. The correspondence released by Pebblebrook indicates that the company sent LaSalle two letters before receiving a formal response, "other than a brief, introductory courtesy call" between financial advisers.
Raymond James and BofA Merrill Lynch are acting as financial advisers to Pebblebrook, and Hunton & Williams is serving as its legal adviser. Citigroup Global Markets Inc. and Goldman Sachs & Co. LLC are acting as financial advisers to LaSalle, and Goodwin Procter LLP is acting as its legal counsel.