REIT Will Consider Higher Bids
Than Offer From Equity Firm

At least four different entities expressed interest in acquiring all or part of Equity Office Properties Trust before the company agreed to sell itself to a unit of private-equity firm Blackstone Group, according to a company proxy.

In addition, the Chicago real-estate investment trust said it will consider higher bids than Blackstone's $48.50-per-share offer. The plan announced in November would be the largest real-estate deal in history, valuing Equity Office at $20 billion plus $16 billion in debt assumption.

Analysts and investors are divided about whether a higher offer will come before the acquisition closes in the first quarter of 2007. Some say Blackstone's offer was too low; others argue it was relatively high compared to Blackstone's purchases of other office REITs.

Jim Corl, chief investment officer of Cohen & Steers, a major Equity Office shareholder, reiterated this week his belief that the replacement value of the company's office properties is between $60 and $70 a share, based on projected rents and occupancy in two to three years. Equity Office owns more than 590 office buildings in 25 markets. "It would be highly possible and very rational for another bidder to come in," Mr. Corl said in an interview.

But Citigroup Inc. analyst Jonathan Litt said he is "decidedly less optimistic about a topping bid for EOP" after unsuccessful efforts by financier Carl Icahn and others to thwart SL Green Realty Corp.'s acquisition of Reckson Associates Realty Corp. this month.

If the deal goes through, Equity Office Chairman Sam Zell will receive $21.6 million in connection with unvested share options, restricted shares and performance awards, according to the Dec. 14 filing with the Securities and Exchange Commission. All told, if he converted various other shares and units that he owns or has an interest in, his payout could total nearly $780 million. Chief Executive Richard Kincaid would receive $20 million in unvested options and restricted shares and $4.6 million in severance pay, according to the filing. By converting various shares, Mr. Kincaid's total could be $53.1 million. Equity Office declined to comment beyond the filing.

The filing said Equity Office, with Merrill Lynch & Co. as an adviser, considered options including selling all or part of the company through a public auction, selling a big chunk of assets into a joint venture, recapitalizing with secured debt or keeping the status quo. In the end, it considered a sale to be "more favorable to our shareholders than other strategic alternatives."

The filing didn't identify the other suitors. People close to the situation say they included two other REITs, Vornado Realty Trust and Brookfield Properties Corp. In a note last week, Mr. Litt said California Public Employees' Retirement System, or Calpers, was another potential bidder.

A Brookfield spokeswoman and a Calpers spokesman declined to comment. Vornado didn't return phone calls seeking comment.

Equity Office, the country's largest public real-estate investment trust, said it first received overtures in early November 2005, when an investment adviser and one of its clients expressed an interest in acquiring the entire company. At the time, Equity Office told the suitors that the company wasn't for sale.

The company filing seems to back up Mr. Litt's identification of Calpers by noting that a senior officer from one of the firms making overtures had resigned in April, about the time Calpers senior investment officer Mike McCook left Calpers.

The investment adviser contacted Equity Office's senior management again in January, reiterating its interest in acquiring all or part of the company, according to the filing. At the time, Mr. Zell said he wouldn't support a sale for less than $45 a share. When the investment adviser said it would be willing to offer $40 a share in cash, Equity Office opened its books in hopes of getting a higher offer. The investment adviser first went the other way, saying in February it believed the company was worth only $37 to $38 a share. It raised that figure to $40.75 in March, but no formal bid was made after the senior officer's resignation in April.

In July, according to the filing, the chairman of a large public office company met with Equity Office's senior management in talks that continued through October and included several possible transactions, including a stock-for-stock merger. That entity was Vornado Realty, according to several people familiar with the situation.

In mid-August, Blackstone's senior managing director, Jonathan Gray, made an unsolicited bid for between $40 and $42 a share, with another large public company acquiring one third of the assets. The partner was Brookfield, according to someone familiar with the situation. Equity Office turned down the offer as insufficient. Later that month, Blackstone told Equity Office its partner had dropped out, according to the filing.

In late August, a fourth suitor -- an unidentified private-equity fund -- jumped in when a large private-equity fund asked whether Equity Office's management would be interested in a management-led buyout. Equity Office rejected this suggestion, the filing said.

The company indicated it briefly had considered, but subsequently rejected, a plan to hold a public auction to sell the REIT. The idea was dismissed as executives expressed concern that if it became widely known the company was for sale, it "would suffer material harm to its strategic disposition program and there could be material disruption within the company and damage to its value."

In November, Blackstone re-emerged on its own to bid to acquire the company for $47.50 a share in cash, kicking up the bid to $48.50 when the offer was formally submitted. The offer falls within the net-asset-value estimate that Merrill Lynch placed on the company of between $45.63 and $49.06 a share. When severance packages and other costs are factored in, the NAV is between $43.75 and $47.21 a share, the filing said.

Equity Office persuaded Blackstone to lower the breakup fee to $200 million from $275 million, should Equity Office walk away from its deal with Blackstone, according to the filing.

"Our board of trustees may respond to an unsolicited written acquisition proposal or terminate the merger agreement and enter into an acquisition agreement with respect to a superior proposal," the filing said.

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