Monmouth’s Board Backs Zell Deal, Spurning Starwood Bid
(Bloomberg) -- The board of Monmouth Real Estate Investment Corp. reaffirmed its support for a takeover bid by Sam Zell’s Equity Commonwealth, spurning an unsolicited all-cash offer from Starwood Capital Group.
Monmouth’s board evaluated Starwood’s offer and determined that the pending transaction with Equity Commonwealth “represents the best opportunity to maximize value for Monmouth stockholders,” according to a statement Thursday.
Starwood called the decision “highly disappointing” and said it wasn’t in the best interests of Monmouth shareholders. Starwood noted that its offer would provide investors in excess of $100 million in additional value.
“We believe Monmouth’s shareholders will express similar disappointment when they are asked to approve the EQC transaction,” Starwood said in a statement. “We stand ready to execute our fully financed, fully actionable all-cash offer.”
Monmouth, a Holmdel, New Jersey-based real estate investment trust focused on industrial property, agreed in May to be acquired by Equity Commonwealth in an all-share deal currently valued at roughly $2.7 billion, including debt, or roughly $17.83 a share based on Thursday’s closing stock price.
Monmouth said it had received an all-cash offer earlier this month for $18.70 a share, which amounted to a purchase price of $19.51 a share that would be reduced by about $62 million due to a termination fee on the original deal, and a dividend of 18 cents that was to be issued as part of the original transaction. That offer was from Starwood, the company led by Barry Sternlicht.
Monmouth later said it received a revised offer from Starwood for $18.88 a share, or $2.8 billion. Starwood called on Monmouth’s board Wednesday to declare its offer superior because it provides investors with greater value and certainty than the merger agreement with Equity Commonwealth.
Shares in Monmouth fell 1.2% to close at $18.88 in New York trading Thursday.
Monmouth said its board determined the Equity Commonwealth offer provides the investors with the opportunity to participate in the significant upside of the combined company led by Zell and his team, as well as access to Equity Commonwealth’s $2.5 billion in cash and other benefits.
Merrill Ross, an analyst with Compass Point Research & Trading, downgraded Monmouth’s stock to a neutral rating earlier this week on the expectation that the board might accept the cash offer from Starwood. He raised his rating to a buy again Thursday, and raised his 12-month price target to $21.50 a share.
“We think that shareholders would be well served to vote in favor of the agreement to combine with EQC because we think the resulting company will have the liquidity to grow a high-quality, modern industrial portfolio and diversify away from its current tenant concentration, which will be reflected in the valuation of the combined entity,” he said in a note to clients.
Blackwells Capital, a Monmouth shareholder that once made a bid of its own for the company, called Equity Commonwealth’s original offer “wholly inadequate” when it was announced. Blackwells has also nominated four directors to Monmouth’s board.
Zell is chairman of Chicago-based Commonwealth, which would hold about 65% of the combined company and add about 120 industrial properties across 31 U.S. states with the acquisition.
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