Pebblebrook Hotel Trust recently released a letter in which it provided a revised merger proposal to LaSalle. The revised non-binding proposal for 100% of LaSalle’s outstanding common shares addresses both price and consideration mix, and implies a merger price of $31.75 per LaSalle common share, representing a premium of 30.2% above LaSalle’s unaffected closing price on March 27, 20182, which was the day before Pebblebrook’s initial offer was publicly revealed.
The implied price of $31.75 per share is based on an increased fixed exchange ratio of 0.8944 Pebblebrook common share for each LaSalle common share. The implied price of this increased offer is $1.75 per share, or 5.8%, above the implied price of Pebblebrook’s original offer. Pebblebrook’s revised proposal also provides LaSalle’s common shareholders with the option to elect to receive cash up to a maximum of 15% in the aggregate (subject to pro rata cutbacks).
The combination of Pebblebrook and LaSalle would create an industry leader with a best-in-class portfolio of upscale and luxury independent and branded hotels and resorts in or near urban markets in the United States, generate strong cash flow, provide for a more stable dividend to shareholders and improve liquidity.
“Pebblebrook is disappointed that LaSalle has not responded to our revised proposal and continues to refuse to negotiate an agreement to combine the two companies which would benefit the shareholders of both companies,” says Jon E. Bortz, Chairman, President and Chief Executive Officer of Pebblebrook Hotel Trust. “This revised offer demonstrates our strong commitment to bringing these two similar companies together. Investor reaction has been overwhelmingly in favor of a combination, and we are ready to move forward swiftly to reach an agreement. Our revised offer provides LaSalle shareholders with a materially larger premium, the flexibility to determine their mix of consideration, and a governance structure that includes board representation drawn from both companies. It also gives LaSalle a 30-day window to solicit alternative proposals. We strongly encourage LaSalle’s Board of Trustees to engage exclusively with us to complete this transaction and create the company that shareholders so clearly desire.”
Raymond James and BofA Merrill Lynch are acting as financial advisors and Hunton Andrews Kurth LLP is acting as legal counsel to Pebblebrook in connection with the proposed transaction.
On Monday, LaSalle Hotel Properties confirmed that it received a revised unsolicited proposal and said that the company would “carefully review Pebblebrook’s revised proposal to determine the course of action that it believes is in the best interest of the Company’s shareholders. The LaSalle Board of Trustees expects to respond to Pebblebrook’s proposal in due course.”
Citigroup Global Markets Inc. and Goldman Sachs & Co. LLC are acting as financial advisors to LaSalle and Goodwin Procter LLP and DLA Piper LLP (US) are acting as legal counsel.
When The REIT Wire first reported on this story in March when the offer was $30 per chair, analysts said the merge “made sense,” although the deal was rejected by LaSalle. Analyst firm, BTIG said it was a “very logical merger,” while RBC Capital Markets pointed out that the CEO of Pebblebrook founded LHO and knows the assets well, continuing that other employees of PEB have also worked at LHO. Moreover, the firm says, the portfolios are very comparable with hotels in many of the same cities with a large mix of independent hotels.
RBC also noted that “PEB shareholders would benefit from scale as G&A as a percent of Hotel EBITDA increased following asset sales. LHO shareholders would benefit from PEB’s top-tier management team and increased exposure to the lodging cycle as LHO reduced leverage and built a large cash position following asset sales.”
Pebblebrook also recently revealed its outlook for the first quarter of 2018, with Bortz noting that, based on estimates, “We are encouraged by the improved business travel demand that we experienced during the first quarter, which was much stronger than expected. These positive business travel trends include increased short-term group and transient bookings, fewer cancellations, better group attendance and increased overall group spend, as well as solid demand from the leisure segment. These trends seem to be continuing into the second quarter.”
We will update this story as we learn more.