Vornado Raises EOP Bid
In Latest Shot at Blackstone

An investor group led by Vornado Realty Trust raised its bid for Equity Office Properties Trust by $4 a share to $56 a share, topping Blackstone Group's bid in one of the biggest buyout fights in history.

The new offer has a total price tag of about $23 billion, excluding debt. Under the offer, each Equity Office share would convert into $31 in cash. Vornado common shares would have a value equal to $25 but the fraction of a Vornado common share that will be issued per Equity Office share will not be less than 0.1852 or more than 0.2174.

Vornado said this assures the overall value of the package remains $56 as long as the Vornado price remains between $115 a share and $135 a share. Vornado expects the deal to add to funds from operations starting in 2008. Equity Office is a real estate investment trust founded by the Chicago real estate magnate Samuel Zell.

Vornado also is in discussions to sell up to about $10 billion of Equity Office assets at closing to Starwood Capital and Walton Street Capital, and to sell an additional approximately $10 billion of Equity Office assets within the first year after closing.

Vornado also expects to sell or co-venture other selected assets of the combined portfolio. The deal also allows Equity Office to pay its regular quarterly dividend of 33 a share.

Vornado had a Wednesday deadline to complete its fact-finding or "due diligence" on whether to top Blackstone's most recent offer of $54 a share -- and if it did top the offer, Blackstone could either go higher or claim the high road of discipline, tell investors that the price was too high and walk away with its consolation price, a $500 million fee that it would share with investors.

The markets had expected a bid to materialize with Equity Office's stock up 89 cents, or 1.6%, to $55.55 Wednesday on the New York Stock Exchange -- and Vornado's down $1.20, or 1%, to $122.35 on the Big Board.

The latest round in the bidding caps a feverish period in which both sides have been consulting with potential buyers of some of the properties in the Equity Office portfolio, the largest in the U.S., to determine how high to go.

The contest started on Nov. 19 when Blackstone agreed to buy Equity Office for $20.1 billion, or $48.50 a share. In July, Equity Office had spurned a then-secret offer by Vornado Chief Executive Steven Roth to merge the two companies.

Vornado struck back on Jan. 17 with two private-equity partners, Starwood Capital and Walton Street Capital, offering $52 a share with 40% payable in Vornado stock and the rest in cash. Blackstone returned the volley eight days later, raising its bid to $54 a share.

Separately on Wednesday, Equity Office reported its fourth-quarter earnings, which came in slightly below analyst estimates. For the fourth quarter, it reported funds from operation -- a key REIT cash-flow measure -- of 54 cents a share, up from 50 cents in the year-ago quarter, but 2 cents below the average Street estimate.

-- Josee Rose contributed to this article.

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