By Sam Boughedda
Real Estate Investment company Prologis (NYSE:PLD) will acquire rival Duke Realty (NYSE:DRE) in an all-stock transaction worth approximately $26 billion, including debt, the company announced Monday.
In May, Duke Realty rejected an almost $24 billion offer from Prologis, labeling it as insufficient.
However, the two companies have now come to a deal, with Prologis stating that it is gaining "high-quality properties for its portfolio in key geographies, including Southern California, New Jersey, South Florida, Chicago, Dallas and Atlanta."
"We have admired the disciplined repositioning strategy the Duke Realty team has completed over the last decade," said Prologis Co-founder, CEO and Chairman Hamid Moghadam. "They have built an exceptional portfolio in the U.S. located in geographies we believe will outperform in the future."
Prologis said it will hold approximately 94% of Duke Realty assets and exit one market.
The deal will see Duke Realty shareholders receive 0.475x of a Prologis share for each Duke Realty share they own. The transaction is expected to close in the fourth quarter.
Following the news, Evercore ISI analyst Steve Sakwa said in a note to investors that "the good news is that PLD only needed to raise the initial offer by ~2% to get the deal done given uncertainty in the market as the fixed exchange rate went from 0.466 to 0.475."
"DRE has a sizable development pipeline and land bank that is primarily located in coastal Tier 1 markets that was also attractive to PLD. The company has a development pipeline that totaled more than $1.6bn at quarter end with 85% allocated to overall Tier 1 markets and more than 60% targeted to coastal Tier 1 markets," added Sakwa.
Meanwhile, Morgan Stanley analyst Ronald Kamdem said in a note, "there is no cash component and the exchange ratio is higher than the 0.466x initially contemplated on 5/10/2022."
He added that "the transaction is anticipated to create immediate accretion of approximately $310-370 million from corporate general and administrative cost savings and operating leverage as well as mark-to-market adjustments on leases and debt. In year one, the transaction is expected to increase annual core funds from operations (Core FFO), excluding promotes per share by $0.20-0.25 (~5% accretion to MSe '22 FFO/sh ex promote). On a Core AFFO basis, excluding promotes, the deal is expected to be earnings neutral in year one."