Pebblebrook increases offer for LaSalle
 
Pebblebrook increases offer for LaSalle
16 APRIL 2018 8:56 AM

Officials with Pebblebrook Hotel Trust announced they have revised their merger proposal for LaSalle Hotel Properties to $31.75 per share with up to 15% paid out in cash.

BETHESDA, Maryland--April 16, 2018-- Pebblebrook Hotel Trust (NYSE:PEB) (the “Company”) today released a letter dated April 13, 2018 to the Board of Trustees of LaSalle Hotel Properties (NYSE:LHO) (“LaSalle”) in which Pebblebrook provided a revised merger proposal.

The revised non-binding proposal for 100% of LaSalle’s outstanding common shares addresses both price and consideration mix, and implies a merger price of $31.75 per LaSalle common share1, representing a premium of 30.2% above LaSalle's unaffected closing price on March 27, 20182, which was the day before Pebblebrook’s initial offer was publicly announced. The implied price of $31.75 per share is based on an increased fixed exchange ratio of 0.8944 Pebblebrook common share for each LaSalle common share. The implied price of this increased offer is $1.75 per share, or 5.8%, above the implied price of Pebblebrook’s original offer. Pebblebrook’s revised proposal also provides LaSalle’s common shareholders with the option to elect to receive cash up to a maximum of 15% in the aggregate (subject to pro rata cutbacks).

The combination of Pebblebrook and LaSalle would create an industry leader with a best-in-class portfolio of upscale and luxury independent and branded hotels and resorts in or near urban markets in the United States, generate strong cash flow, provide for a more stable dividend to shareholders and improve liquidity.

“Pebblebrook is disappointed that LaSalle has not responded to our revised proposal and continues to refuse to negotiate an agreement to combine the two companies which would benefit the shareholders of both companies,” said Jon E. Bortz, Chairman, President and Chief Executive Officer of Pebblebrook Hotel Trust. “This revised offer demonstrates our strong commitment to bringing these two similar companies together. Investor reaction has been overwhelmingly in favor of a combination, and we are ready to move forward swiftly to reach an agreement. Our revised offer provides LaSalle shareholders with a materially larger premium, the flexibility to determine their mix of consideration, and a governance structure that includes board representation drawn from both companies. It also gives LaSalle a 30-day window to solicit alternative proposals. We strongly encourage LaSalle’s Board of Trustees to engage exclusively with us to complete this transaction and create the company that shareholders so clearly desire.”

Raymond James and BofA Merrill Lynch are acting as financial advisors and Hunton Andrews Kurth LLP is acting as legal counsel to Pebblebrook in connection with the proposed transaction.

The full text and Exhibit A of Pebblebrook’s letter to LaSalle dated April 13, 2018 follows.

1 Based on the closing price of Pebblebrook common shares on April 13, 2018.
2 The day prior to the public announcement of Pebblebrook’s initial offer. Percentage is based on ex-dividend price of $24.39; ex-dividend date was March 28, 2018.

Letter from Pebblebrook to LaSalle dated April 13, 2018

April 13, 2018
Board of Trustees
LaSalle Hotel Properties
7550 Wisconsin Avenue, 10th Floor
Bethesda, MD 20814

Ladies and Gentlemen,

The Board of Pebblebrook remains committed to a merger of our two companies to form a leader in the lodging REIT sector. Collectively we have the opportunity to combine our high-quality portfolios to create a more diversified and robust company, well positioned to succeed in the future and in all phases of the lodging cycle, overseen by a board drawn from both companies. The many strategic, operational and financial rationales for the merger highlighted in our previous letters remain true today, and we are encouraged by the overwhelmingly positive response to the proposed merger from shareholders of both companies as well as the research community.

LaSalle's response letter to us dated March 22, 2018 indicated price and mix of consideration as the only factors that caused the rejection of our proposal. Based on that response, it would appear LaSalle recognizes, as we do, the many benefits and strong rationale for combining our companies. With your stated concerns regarding price in mind, we are increasing our offer price and providing a cash option for shareholders. Our new proposed terms with respect to merger consideration are as follows:

Revised Price and Form of Consideration: A fixed exchange ratio of 0.8944 Pebblebrook common share for each LaSalle common share, resulting in an implied price of $31.75 per share for 100% of LaSalle's outstanding common shares based on Pebblebrook's closing price of $35.50 on April 13, 2018. This offer represents an increase of $1.75 per share or 5.8% over the implied price from our original offer. We are also prepared to provide LaSalle shareholders with the option to elect to receive cash up to a maximum of 15% in aggregate of the merger consideration, subject to pro ration. The implied price of $31.75 per share represents the following premiums for LaSalle's shareholders:

• 30.2% above the unaffected closing price on March 27, 20181;
• 24.5% above the 10-day VWAP on March 27, 2018; and
• 13.9% above Analyst Consensus NAV on March 27, 20182

There remains no financing contingency, and we are prepared to move forward immediately as stated in our original March 6, 2018 proposal letter. We believe that with your full cooperation, we could sign a definitive agreement in ten business days. To that end, we have attached to this letter a summary of key terms of our offer and the process for entering into a definitive agreement (Exhibit A). Please note the following important terms:

• Our offer allows for LaSalle shareholders to choose their desired cash/stock consideration mix (subject to a cash maximum and pro ration).
• We provide a "Go Shop" structure that would allow LaSalle to further test the market for superior offers.
• We propose an exclusivity period of ten business days.
• We propose that the board of trustees of the combined company be composed of three independent trustees from each of LaSalle and Pebblebrook, and Jon E. Bortz.
• Severance payments and equity award vesting related to change in control will be waived for all of Pebblebrook's senior officers.

Despite our repeated outreach, we have unfortunately been unable to have any direct conversations with you about our vision for the combined company or to access any information other than what is publicly available. Nevertheless, we are prepared to move quickly and to allocate all necessary resources to conduct mutual due diligence with your team and simultaneously work towards the mutual execution of a definitive agreement.

We recognize the high-quality nature of your portfolio, and trust you also understand and appreciate the high-quality nature of ours. Our proposal is not the end for either company but rather a strategic combination that will result in enhanced future benefits to all shareholders. Based on our proposal, LaSalle shareholders will own over 50% of the combined company and benefit materially not only from any value enhancement in LaSalle's current portfolio but also from the value accretion in our portfolio, which we are optimistic about given the many redevelopments we have recently completed and the high-quality and premier locations of our properties. In addition, as shareholders in the combined company under the terms of our proposal, current LaSalle shareholders' expected annual dividend per share will increase significantly to approximately $1.36 from a current annual rate of $0.92, an increase of 48%, based on Pebblebrook's current dividend and the proposed exchange ratio.

We are confident our proposal represents greater value to LaSalle's shareholders than LaSalle could expect to achieve in the foreseeable future on a standalone basis, or from other buyers. As such, and as described in the summary of key terms on the attached Exhibit A, we are willing to agree to a customary 30-day Go-Shop period in which you could solicit alternative proposals. Given the significant conflicts our proposal causes for your management team, we believe it is in the best interest of shareholders for you to form a special committee consisting of independent directors in order to fairly and appropriately review our proposal.

We remain committed to working with you to complete a transaction and hope that our revised proposal will result in you engaging directly and exclusively with us to work toward completing the transaction. We stand by ready to engage immediately and would like to hear from you or your advisors by Sunday evening.

Sincerely yours,
Jon E. Bortz
Chairman, President & CEO
PEBBLEBROOK HOTEL TRUST

1 The day prior to the public announcement of our initial offer. Percentage is based on ex-dividend price of $24.39; ex-dividend date on March 28, 2018.
2 Analyst Consensus NAV of $27.88 as of March 27, 2018 per SNL.

Exhibit A
Summary of Key Terms of Non-Binding Proposed Combination of Pebblebrook Hotel Trust ("Pebblebrook") and LaSalle Hotel Properties ("LaSalle")

Merger Consideration (shares; LaSalle shareholders' option for up to 15% in cash):

• fixed exchange ratio of 0.8944 Pebblebrook common share for each outstanding LaSalle common share
• each LaSalle shareholder has option to elect to receive a cash/stock consideration mix (subject to 15% aggregate cash cap and pro rata cutbacks)
• Pebblebrook to exchange new preferred shares for LaSalle's existing preferred shares (with substantially identical terms)

2. Governance

• Pebblebrook senior executives to manage combined company
• 7-member Board of Trustees: three independent trustees from each company and Jon E. Bortz

3. Financing Sources (no financing contingencies):

• Pebblebrook to issue its common and preferred shares for the equity consideration
• Pebblebrook to assume or repay LaSalle's term loans and first mortgage loans

4. Due Diligence (accelerated, customary, reciprocal):

• 10 business days for confirmatory due diligence regarding key financial, operational, environmental, regulatory, legal and tax aspects of LaSalle (and Pebblebrook)

5. Representations, Warranties and Covenants (customary, reciprocal):

• customary and reciprocal to both LaSalle and Pebblebrook

6. 10- business day Exclusivity Period; Consummation after shareholder approvals:

• 10-business day exclusivity period, for good-faith negotiation and execution of definitive agreement
• consummation as soon as practicable following the receipt of shareholder approvals from both Pebblebrook and LaSalle

7. 30-day Go-Shop:

• LaSalle to have right to a 30-day Go-Shop period for an alternative transaction, subject to customary matching and information rights

8. Break-up Fee:

• 1.25% of equity value during Go-Shop period
• 3.25% of equity value after Go-Shop period

9. Pebblebrook Board Approval:

• Pebblebrook's Board of Trustees has approved the terms contained herein

10. Above terms subject to the following assumptions and conditions:

• negotiation and execution of a definitive agreement
• satisfactory completion of due diligence
• change in control severance costs of approximately $20.2 million under LaSalle agreements
• no payments or vesting under change in control severance agreements for Pebblebrook's executive officers

This summary is non-binding and neither party shall be under any legal obligation with respect to a merger transaction unless and until each party executes a definitive merger agreement.

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1 Comment

  • Keyanna April 20, 2018 7:49 PM Reply

    Good to find an expert who knows what he's taiklng about!

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