Brandywine Plans to Acquire
Prentiss for $1.92 Billion
A plan by Brandywine Realty Trust to acquire Prentiss Properties Trust in a cash-and-stock transaction valued at about $1.92 billion will create one of the largest office real-estate investment trusts in the country.
The acquisition will add properties in Washington, D.C., California and Texas to the portfolio of Brandywine, which is based in Plymouth Meeting, Pa. Brandywine said that upon completion of the acquisition, it will own and manage 49 million square feet of office space. The company currently has 24.2 million square feet in the mid-Atlantic region.
As part of the transaction, Prudential Real Estate Investors, the REIT business of Prudential Financial Inc., will acquire a portfolio of Prentiss assets valued at about $753 million, consisting of all of the company's properties in Denver and some assets in California and Washington, D.C. Brandywine will provide management and leasing for those assets, with the exception of the Denver market.
Each Prentiss shareholder will receive $21.50 a share in cash and 0.69 Brandywine share for each Prentiss share, for a per-share value of $41.99 based on Brandywine's 4 p.m. price of $29.69 in New York Stock Exchange composite trading. Prentiss shares rose 96 cents, or 2.3%, to $41.56, also in composite trading.
Brandywine also will assume Prentiss debt, which stood at $1.38 billion on June 30.
During a conference call with Brandywine and Prentiss executives, some investors and analysts expressed concern that the premium being offered to Prentiss shareholders was small and that the transaction reminded them of the termination of Mack-Cali Realty Corp.'s planned acquisition of Prentiss in 2000.
Brandywine President and Chief Executive Officer Gerry Sweeney described the merger as a "transformational event for both organizations" and said the larger combined company, deeper management team, and development pipeline will offer far more growth potential to the new company than each of the stand-alone companies had on their own.
Prentiss Chairman Michael Prentiss defended the price tag, saying real estate is at a historical high from a valuation standpoint, and he considers Brandywine's offer to be a fair one for shareholders. Mr. Prentiss and President and CEO Thomas F. August are expected to join Brandywine's board.
The transaction has a $60 million breakup fee should Prentiss receive a higher bid from another entity and choose to walk away from the Brandywine agreement. If, however, shareholders vote down the acquisition, the company would get a breakup fee of only $12.5 million.
J.P. Morgan Securities Inc. advised Brandywine and Prudential Real Estate Investors, while Lazard Freres & Co. advised Prentiss Properties. The law firm Pepper Hamilton LLP advised Brandywine, Akin Gump advised Prentiss Properties and Goodwin Procter advised Prudential Real Estate Investors.
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