However, this may be a moot point. American’s second offer explicitly states that it will pay no less than $13.59 per Cole share. This will be achieved through additional issues of fractional shares.
Although American’s proposal is worth about $6.7 billion, the total offer also includes the estimated $3 billion value of Cole’s outstanding property portfolio. As such, its true value is nearly $10 billion.
Complications and Legal Issues
Since American’s bid for Cole was not solicited, there is a possibility that Cole’s trustees could simply reject it out of hand. In the world of unsolicited takeover bids, this would be par for the course and might not come as a surprise to American’s management team.
However, there are reasons to believe that Cole is seriously considering the new offer and will ultimately acquiesce to the deal. Including Cole’s property portfolio, American has guaranteed combined cash and stock payments of at least $13.59 per non-traded Cole share.
Assuming that Cole’s management team and shareholders accept the deal, there appear to be no other legal or procedural hurdles to the timely completion of this takeover.
Long-Term Outlook and Possible Plays
Given the secular tailwinds that are finally beginning to appear in the commercial and residential property markets, all indications are that this deal will create significant value for the combined company’s shareholders. Indeed, the coming 12-month span may provide enterprising investors with a historic opportunity to invest in money-printing REITs during a period of healthy rents and steadily rising property values.
More broadly, this deal looks to continue American’s aggressive “add-on” growth strategy. By using cash and leverage to purchase smaller non-traded REITs, the company is clearly looking to grow more quickly than an organic growth strategy might allow. With this purchase, American promises to create one of the largest commercial REITs in existence and offer yields of more than 6 percent to its shareholders.
In sum, investors who wish to play this deal and others like it may wish to open long positions in American at these levels. Given the real estate market’s gathering strength, it seems likely that American will be able to raise its yield substantially in the coming quarters. Likewise, those who believe that American may target additional publicly traded REITs would do well to position themselves out in front of such deals.
The article Continuing the REIT Buying Spree originally appeared on Fool.com and is written by Mike Thiessen.
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