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Vornado Realty Trust launched a bold $39.1bn offer to buy Equity Office Properties on Thursday, raising the stakes in the takeover battle for the biggest publicly traded owner of office buildings in the US.

If successful, the Vornado bid would thwart an existing $38.3bn deal for EOP to be bought by Blackstone, the private equity group, in the largest leveraged buy-out on record.

The proposal by Vornado, which is backed by Starwood Capital and Walton Street Capital, two property investors in talks to acquire some of EOP’s assets after the deal, is worth $56 per share in a mix of cash and stock.

The price - only slightly higher than the $54 per share in cash offered by Blackstone - disappointed many Wall Street investors, who sent EOP shares down 1 per cent to $54.97 in noon trading.

The board of EOP, which was founded by billionaire investor Sam Zell and is headquartered in Chicago, is expected to meet soon to consider Vornado’s bid. Its trustees will be presented with a familiar dilemma in takeover battles: whether to choose the higher price in the Vornado deal or the higher certainty of Blackstone’s offer, which is scheduled for a shareholder vote next week.

In bidding for EOP, Vornado is hoping to become the leading real estate investment trust in the US, with a portfolio of properties in the most valuable markets in California and the East Coast. To fund the bid, Vornado is planning to sell about $20bn worth of EOP buildings within a year, of which about half will go to Starwood and Walton Street. These two property funds had originally been discussing a direct equity investment in the EOP bid alongside Vornado.

Vornado’s bid, financed by Lehman Brothers, JPMorgan, Barclays Capital, RBS Greenwich Capital and UBS, is composed of $31 per share in cash and $25 per share in stock. The stock portion includes a “collar”, protecting Vornado investors against the risk that the company’s shares could fall below $115. By noon, Vornado shares were up 1.4 per cent to $124.05.

Blackstone responded aggressively to the competing offer. In a statement, the buy-out group run by Steve Schwarzman said: “We do not believe that the true value of Vornado’s proposal is anywhere near $56 per share and Blackstone has no intention of increasing its all cash price. The true value of Vornado’s offer should reflect a discount for stock, the three-four month time delay before receiving it and the risk of VNO’s share price declining below $115 per share.”

Based in New Jersey and run by Steven Roth, Vornado has a market capitalisation of $18.8bn.

Copyright The Financial Times Limited 2017. All rights reserved.
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