Vornado Tops Blackstone

The largest leveraged buyout in history may have just gotten larger.

Vornado Realty Trust just announced that it has offered $52 per share for commercial real estate giant Equity Office Properties Trust, with Starwood Capital and Walton Street Capital also participating. This tops an existing $48 per share bid from The Blackstone Group, and would raise the overall transaction value from $36 billion to $38 billion (including $16 billion in assumed debt).

Under terms of the new proposal, Equity Office shareholders would receive $31.20 per share in cash, plus $20.4 worth of Vornado stock. If closed, Vornado would consolidate and control Equity Office assets in five cities Boston, Los Angeles, New York, San Francisco and Washington while Starwood and Walton would share the remainder.

The very existence of this bid comes as a bit of a surprise, given this mornings news reports that Cerberus Capital Management had left the consortium at the last minute. Some pundits had speculated that the three real estate groups wouldnt have enough liquidity to pull off such a transaction, although Vornado seems to have answered that by announcing plans to finance the equity tranche via an issuance of $10.6 billion worth of shares.

The Blackstone Group, per its initial agreement, has the right to match Vornados offer. If it were not to do so and Equity Office were to accept the new bid — Blackstone would be entitled to a $200 million breakup fee.