Vornado Offers Equity Office
A Quicker Payoff Proposal

In its latest bid to win the nation's largest publicly held portfolio of office buildings, Vornado Realty Trust says it will accelerate payment of the cash portion of its $23.24 billion, $56-a-share offer for Equity Office Properties Trust.

Vornado's "alternative proposal" yesterday comes after Equity Office spurned Vornado's previous bid Friday, despite its being $2 a share higher than an all-cash bid by private-equity firm Blackstone Group that could close as soon as Friday.

Vornado said its latest proposal addresses Equity Office board members'"concerns about certainty and speed." Last week, Equity Office complained that Vornado's previous offer "continued to fail to address many of the company's key concerns," among them that its deal would take months to close compared with Blackstone's offer.

Vornado would offer the cash portion of its deal, for a minimum of 51% of Equity Office's shares, three weeks after signing an agreement with Equity Office. Such a move could speed up its bid because the cash tender wouldn't require a vote by Vornado shareholders. There would then be a mandatory 20-day offering period before the cash could be dispensed.

The stock portion would be paid upon closing. Vornado said the deal would close 3½ months after signing. The deal still would require a vote by Vornado shareholders.

Though the cash portion of its bid could be made sooner, the overall value remains the same. Vornado is offering $56 per Equity Office share in a combination of 55% cash and 45% Vornado stock.

The latest move came amid intense lobbying by Vornado and Blackstone as Equity Office shareholders prepare to vote on the competing offer. Equity Office, a real-estate investment trust based in Chicago, said Friday it would delay the vote, previously scheduled for today, until Wednesday, in what analysts said was an effort to pressure the two suitors to further sweeten their bids.

Vornado spokeswoman Roanne Kulakoff said the New York-based REIT wouldn't comment beyond what was in the company's news release. An Equity Office representative said it would review Vornado's proposal "in due course."

People familiar with Blackstone's offer said the firm isn't likely to change its bid unless Vornado significantly raises its offer. In a statement, Blackstone said Vornado's offer isn't higher than its previous one and doesn't eliminate uncertainty. "All of the very real closing risks that were part of VNO's original offer remain," it said, adding, "Blackstone's all-cash offer remains clear, certain and scheduled to close on Friday."

Vornado's effort faces other hurdles. Also Friday, Equity Office complained that under certain circumstances, Equity Office could be required to reimburse Vornado the $500 million breakup fee Vornado would have to pay Blackstone.

Equity Office bondholders are watching the contest with apprehension. While Blackstone has offered to repay Equity Office's bondholders under its offer, Vornado has yet to address bondholders directly. Equity Office's board has a fiduciary duty to shareholders, not bondholders, so it isn't obligated to consider their concerns.

Equity Office's proxy estimated Vornado's offer at between $54.28 and $54.88 per share in net present value terms, not enough of a premium, it said, given the added risk compared with a quick, $54-a-share all-cash deal from Blackstone.

Vornado was down 39 cents to $125.35 at 4 p.m. Friday. Equity Office was up 23 cents to $55.38, the New York Stock Exchange's most actively traded stock, with 47.3 million shares changing hands.

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