US hotel group founder aims for return booking with $3bn deal

Pebblebrook Hotel Trust has sweetened its $3 billion-plus offer to buy US peer LaSalle Hotel Properties after the owner of high-end locations including W Los Angeles saw an initial bid rebuffed last month.

Pebblebrook chief executive Jon Bortz is seeking to buy back into LaSalle a decade after he left a company he founded and headed while working for global real estate group Jones Lang LaSalle in the early 1990s.

Mr Bortz said the reaction from investors to the deal, which has driven LaSalle shares 20 per cent higher since its announcement last month, had been “overwhelmingly” positive.

The new offer is a 5.8 per cent improvement over the previous deal, and at 0.8944 of a Pebblebrook common share for each LaSalle share, implies an offer price of $31.75 per share. That values the deal at more than $3bn.

Pebblebrook’s previous offer was at an implied price of $29.95 per share.

Hedge fund HG Vora Capital Management had previously urged LaSalle Hotel Properties to negotiate with Pebblebrook for a better offer after taking about a 7.1 per cent stake in LaSalle. In a letter to LaSalle’s management, founder of the hedge fund, Parag Vora, said Pebblebrook’s initial offer was “inadequate”, but presents a “compelling” opportunity for a more efficient cost of capital and stronger cash flows.

If the two hotel owners merge, it would form the second-biggest lodging real estate investment trust by equity market capitalisation in the United States.

“We believe a sale of the entire company would maximise value for shareholders,” Mr Vora said, after his hedge fund became the third-biggest shareholder in LaSalle.

Mr Vora had urged LaSalle, owner of Park Central San Francisco and Westin Michigan Avenue, to form an independent strategic committee to negotiate with Pebblebrook and gauge interest from other potential buyers.

This week, Mr Bortz said: “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.

“Investor reaction has been overwhelmingly in favour of a combination, and we are ready to move forward swiftly.” LaSalle Hotel said it would review the revised proposal.

Both firms, which own but do not operate hotels, describe themselves as focused on upscale properties.

Based on the offer, LaSalle shareholders would own more than 50 per cent of the combined company. The trust’s website says it currently owns 41 hotel properties, compared to the 28 listed by Pebblebrook.

The offer also gives each LaSalle shareholder an option to be paid cash for up to a maximum of 15 per cent of the value of their holding, Maryland-based Pebblebrook said. Pebblebrook would issue its common and preferred shares to fund the deal and assume or repay LaSalle Hotel’s term loans and first mortgage loans.

Other Pebblebrook properties include the InterContinental Buckhead Atlanta and The Westin San Diego Gaslamp Quarter.

Raymond James and BofA Merrill Lynch are the financial advisers for Pebblebrook, while Citigroup Global Markets and Goldman Sachs were advising LaSalle Hotel.