Earlier this morning, Bethesda, MD-based Pebblebrook Hotel Trust released two letters to LaSalle Hotel Properties in which it proposed a share-for-share merger. The proposal represented an implied merger price of $30.00 per LaSalle common share, representing a premium of 18.0% to LaSalle’s trailing 10-day VWAP as of March 5, 2018, based on the proposed fixed exchange ratio of 0.8655 Pebblebrook common shares for each LaSalle common share. As of the close on March 27, 2018, the implied merger price was $29.95 per LaSalle common share, representing a premium of 17.4% to LaSalle’s trailing 10-day VWAP as of March 27, 2018.
In looking at the proposed merger, analysts were quick to say it “made sense.” 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.”
The firm also expects additional benefits of scale at the property level. “We would expect PEB to target additional value-add opportunities throughout the portfolio as well as some asset monetization.”
As was communicated orally to LaSalle following receipt of LaSalle’s letter response dated March 22, 2018, Pebblebrook is prepared to engage in discussions around price and mix of consideration as warranted by due diligence. 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.
“Our shareholders and LaSalle’s shareholders have long encouraged us to explore a combination to create a stronger industry leader,” said Jon E. Bortz, Chairman, President and Chief Executive Officer of Pebblebrook Hotel Trust. “This combination is obvious and has been so for several years. Our companies have complementary assets and similar strategies, and we strongly believe bringing our two companies together is in the best interests of our respective shareholders. We believe the shareholders of both of our companies should know about this proposal, and it is our hope that LaSalle will decide to engage with us to reach a mutually beneficial agreement.” Raymond James and BofA Merrill Lynch are acting as financial advisors and Hunton & Williams LLP is acting as legal counsel to Pebblebrook in connection with the proposed transaction.
The REIT Wire will continue to follow this story and update as we learn more.