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Bethesda REITs converge: Pebblebrook has $5.2B deal to buy LaSalle

Blackstone, which already had deal to buy LaSalle, entitled to $112M fee

In this Sept. 24, 2013, file photo, freshly-cut stacks of $100 bills make their way down the line at the Bureau of Engraving and Printing Western Currency Facility in Fort Worth, Texas.(AP Photo/LM Otero, File)

In this Sept. 24, 2013, file photo, freshly-cut stacks of $100 bills make their way down the line at the Bureau of Engraving and Printing Western Currency Facility in Fort Worth, Texas.(AP Photo/LM Otero, File)

Six months after making an unsolicited takeover bid, and after its target rejected multiple offers and made a deal to be bought by an investment fund, a Bethesda hotel real estate investment trust has a deal to buy another Bethesda hotel REIT.

Pebblebrook Hotel Trust has an agreement to buy all of the outstanding common shares of LaSalle Hotel Properties in a deal valued by the companies at about $5.2 billion and expected to close by the end of the year.

The combination of the two companies would make one larger REIT that controls 66 upscale, luxury and collection-branded hotels and resorts in or near 16 urban markets.

“We are confident that shareholders will benefit from this premium portfolio of high-quality independent and branded hotels through its capacity to generate strong cash flow, provide for a stable dividend and capitalize on market opportunities, including improving hotel industry fundamentals,” said Jon E. Bortz, chairman, president and CEO of Pebblebrook, in a statement announcing the acquisition.

Michael D. Barnello, president and CEO of LaSalle, noted that the deal represents a 48 percent premium to LaSalle’s unaffected share price based on its March 27 closing. “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 in the statement.

The deal means LaSalle has broken its previous deal to be acquired by a real estate fund managed by New York-based Blackstone Group LP. LaSalle also canceled its shareholder meeting set for Thursday related to the Blackstone agreement. The Blackstone fund could have proposed a better deal, but instead it waived. The fund is entitled to a payment of $112 million because of the broken deal.

Blackstone Group declined to comment for this article.

Some job losses could be coming as a result of the deal. In a statement announcing the planned acquisition, the companies contemplated corporate general and administrative expense cost savings of $18 million to $20 million by eliminating overlapping functions.

Pebblebrook will keep Bortz as its chairman, president and CEO; Raymond D. Martz as executive vice president, CFO, treasurer and secretary; and Thomas C. Fisher as executive vice president and chief investment officer. The board of Pebblebrook will not change. The companies, which both have offices on Wisconsin Avenue in Bethesda, said Pebblebrook will remain headquartered in Bethesda when the deal closes. A spokesperson for the company could not immediately be reached for comment.

Pebblebrook on March 6 made its initial, unsolicited offer to buy LaSalle in exchange for its own shares at an implied price of roughly $30 per share. LaSalle rebuffed that bid, and after Pebblebrook twice raised its offer, LaSalle in May made a deal to be acquired by Blackstone for $33.50 per share in an all-cash deal. That prompted Pebblebrook to nearly double its take in LaSalle, with 9 percent of the shares.

Afterward, Pebblebrook kept improving its offer. In August, LaSalle’s board said the latest Pebblebrook proposal might be better than Blackstone’s, and on Wednesday, LaSalle’s board confirmed Pebblebrook’s latest offer was better.

Under the terms of the agreement, LaSalle shareholders will receive either a fixed amount of $37.80 in cash or a fixed exchange ratio of 0.92 Pebblebrook common shares for each LaSalle share, with a maximum of 30 percent of outstanding LaSalle shares redeemable for cash. If more than 30 percent of the outstanding LaSalle shares are exchanged for cash, the amount of cash will be reduced pro rata. Any shares already owned by Pebblebrook will be canceled.

The deal was approved by unanimous vote of both company’s boards, with one LaSalle board member absent because of recent hospitalization. The transaction is subject to regulatory approvals and approval by shareholders of both companies.

LaSalle also plans to sell three of its hotels when the deal closes. The deal isn’t contingent on the sale of those three hotels.

Pebblebrook will conduct a conference call to discuss additional details of the transaction on Sept. 13.

Raymond James and BofA Merrill Lynch are serving as financial advisers to Pebblebrook; Hunton Andrews Kurth LLP is serving as legal counsel. For LaSalle, Citigroup Global Markets Inc. and Goldman Sachs & Co. LLC are the financial advisers and Goodwin Procter LLP and DLA Piper LLP is legal counsel.

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