Pebblebrook makes final offer to merge with LaSalle
 
Pebblebrook makes final offer to merge with LaSalle
24 APRIL 2018 9:01 AM

Pebblebrook Hotel Trust released another letter it sent to LaSalle Hotel Properties detailing its final merger offer, increasing its per-share price by $2.49 compared to the original offer and upping its cash option to 20%.

BETHESDA, Maryland, APRIL 24, 2018 – Pebblebrook Hotel Trust (NYSE: PEB) (“Pebblebrook”) today released a letter dated April 20, 2018 to the Board of Trustees of LaSalle Hotel Properties (NYSE: LHO) (“LaSalle”) in which Pebblebrook provided a final merger proposal.

The non-binding proposal for 100% of LaSalle’s outstanding common shares represented a higher implied price of $32.49 per LaSalle common share, a premium of 33.2% above LaSalle's unaffected closing price on March 27, 2018 and a significant premium to analyst consensus NAV and consensus price target. The implied price of $32.49 per share is based on an increased fixed exchange ratio of 0.9085 Pebblebrook common share for each LaSalle common share, and is $2.49 per share, or 8.3%, above the implied price of Pebblebrook’s original offer. Pebblebrook’s revised proposal also provides LaSalle’s common shareholders with the option to elect to receive cash up to a maximum of 20% in the aggregate (subject to pro rata cutbacks).

“This offer provides substantial long-term financial and strategic benefits for LaSalle and Pebblebrook shareholders,” said Jon E. Bortz, Chairman, President and Chief Executive Officer of Pebblebrook Hotel Trust. “We have offered to open our books for LaSalle to fully evaluate our offer, and strongly encourage LaSalle’s Board of Trustees to engage with us. We are encouraged by the overwhelmingly positive reaction from investors who own LaSalle and Pebblebrook shares, and who recognize the upside potential of the combined entity. We hope that LaSalle will review our detailed proposal fully and fairly and negotiate with us to reach a definitive merger agreement.”

Raymond James and BofA Merrill Lynch are acting as financial advisors and Hunton Andrews Kurth LLP is acting as legal counsel to Pebblebrook in connection with the proposed transaction.

The full text and Exhibit A of Pebblebrook’s letter to LaSalle dated April 20, 2018 follows.

Letter from Pebblebrook to LaSalle dated April 20, 2018

April 20, 2018
Board of Trustees
LaSalle Hotel Properties
7550 Wisconsin Avenue, 10th Floor
Bethesda, MD 20814

Ladies and Gentlemen,

We have not received a response from you regarding our revised offer detailed in our April 13, 2018 letter. Nevertheless, we understand that you may be evaluating other offers which may be at prices lower than ours. Before entering into an agreement to accept any such offer accompanied by a break-up fee, potentially depriving shareholders of a higher-value transaction, we urge you to consider our proposal and engage in discussions with us. To ensure that you have the best proposal for your shareholders to consider, we offer the following as our final offer:

Revised Price and Form of Consideration: A fixed exchange ratio of 0.9085 Pebblebrook common share for each LaSalle common share, resulting in an implied price of $32.49 per share for 100% of LaSalle’s outstanding common shares based on Pebblebrook's closing price of $35.76 on April 19, 2018. This offer represents an increase of $2.49 per share, or 8.3%, over the implied price from our original offer. We are also prepared to provide LaSalle shareholders with the option to elect to receive cash up to a maximum of 20% in aggregate of the merger consideration, subject to pro ration. The new implied price of $32.49 per share represents the following premiums for LaSalle’s shareholders:

  • 33.2% above the unaffected closing price on March 27, 2018;
  • 27.4% above the 10-day VWAP on March 27, 2018;
  • 16.5% above analyst consensus NAV on March 27, 2018; and
  • 28.3% above analyst consensus price target (47.7% and 30.0% above the price targets of $22.00 and $25.00, respectively, of your financial advisors).

The other key terms proposed in our April 13, 2018 letter remain unchanged and we have again attached as Exhibit A to this letter a summary of the key terms of our revised offer. We will send you a draft merger agreement shortly. We believe that Exhibit A and the forthcoming draft merger agreement provide you and your advisors with all the information typically required in a bid proposal and allows you to evaluate our offer fully and fairly. Recently, we offered to provide you and your advisors access to Pebblebrook’s confidential information to assist you in evaluating our proposal. To the extent you require additional information to be able to evaluate our offer fully and fairly, please let us know.

We note again that there was strong public shareholder and research community support for our original offer several weeks ago, even though that offer did not include a cash component, and was at a lower price. We have addressed your previously stated concern around price by increasing the offered amount of Pebblebrook shares, which we note are trading at a level significantly lower than the research community’s consensus price target of $38.285 per share.

To address your previously stated concern about the “mix” of consideration in our original offer, we included a cash component in our first revised offer and have increased the cash component from 15% to 20% in our final offer. Due to the substantial cross-ownership of approximately 70% of LaSalle’s shares by shareholders that also own Pebblebrook shares, and since we calculate approximately 40% of LaSalle’s shareholders are index or ETF investors, we believe the vast majority of LaSalle shareholders have already demonstrated their desire or need to own Pebblebrook shares and will not elect the cash option, particularly in light of the tax benefits offered through a stock-for-stock merger, preferring instead to own shares in the combined company. As a result, we believe any LaSalle shareholders that so desire may receive individual cash consideration substantially in excess of 20%.

We continue to believe that there will be substantial long-term strategic benefits from combining our companies with significant potential value creation for LaSalle shareholders that would be unavailable in the case of an all-cash offer.

We look forward to hearing from you.

Sincerely yours,

Jon E. Bortz
Chairman, President & CEO
Pebblebrook Hotel Trust

Exhibit A
Summary of Key Terms of Non-Binding Proposed Combination of Pebblebrook Hotel Trust ("Pebblebrook") and LaSalle Hotel Properties ("LaSalle")

1. Merger Consideration (shares; LaSalle shareholders' option for up to 20% in cash):
o fixed exchange ratio of 0.9085 Pebblebrook common share for each outstanding LaSalle common share
o each LaSalle shareholder has option to elect to receive a cash/stock consideration mix (subject to 20% aggregate cash cap and pro rata cutbacks)
o Pebblebrook to exchange new preferred shares for LaSalle's existing preferred shares (with substantially identical terms)

2. Governance
o Pebblebrook senior executives to manage combined company
o 7-member Board of Trustees: three independent trustees from each company and Jon E. Bortz

3. Financing Sources (no financing contingencies):
o Pebblebrook to issue its common and preferred shares for the equity consideration
o Pebblebrook to assume or repay LaSalle's term loans and first mortgage loans

4. Due Diligence (accelerated. customary. reciprocal);
o 10 business days for confirmatory due diligence regarding key financial, operational, environmental, regulatory, legal and tax aspects of LaSalle (and Pebblebrook)

5. Representations, Warranties and Covenants (customary. reciprocal):
o customary and reciprocal to both LaSalle and Pebblebrook

6. 10-business day Exclusivity Period: Consummation after shareholder approvals:
o 10-business day exclusivity period, for good-faith negotiation and execution of definitive agreement
o consummation as soon as practicable following the receipt of shareholder approvals from both Pebblebrook and LaSalle

7. 30-day Go-Shop:
o LaSalle to have right to a 30-day Go-Shop period for an alternative transaction, subject to customary matching and information rights

8. Break-up Fee:
o 1.25% of equity value during Go-Shop period
o 3.25% of equity value after Go-Shop period

9. Pebblebrook Board Approval:
o Pebblebrook's Board of Trustees has approved the terms contained herein

10. Above terms subject to the following assumptions and conditions:
o negotiation and execution of a definitive agreement
o satisfactory completion of due diligence
o change in control severance costs of approximately $20.2 million under LaSalle agreements
o no payments or vesting under change in control severance agreements for Pebblebrook's executive officers

This summary is non-binding and neither party shall be under any legal obligation with respect to a merger transaction unless and until each party executes a definitive merger agreement.

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