ProLogis to buy Catellus for $3.6 billion
Monday June 6, 1:08 pm ET
By Ilaina Jonas
NEW YORK (Reuters) - ProLogis (NYSE:PLD - News) on, an owner and developer of warehouse and industrial property for tenants such as Sears and General Electric, on Monday said it would buy rival Catellus Development Corp. (NYSE:CDX - News) for $3.6 billion to expand its U.S. holdings and help finance development domestically and abroad.
The acquisition of Catellus would increase ProLogis' existing facilities by about 50 million square feet, to more than 350 million square feet in 75 markets in North America, Europe and Asia, ProLogis Chief Executive Jeffrey Schwartz said.
It also would boost developable land -- particularly in key port areas of Southern California and New Jersey -- by 40 million square feet, virtually doubling its holdings of buildable square feet for development, Schwartz said.
Additionally, the acquisition would allow ProLogis to double its development activities without jeopardizing its credit rating by piling on debt without expanding its equity base.
The proposed acquisition price represents a premium of more than 16 percent over Catellus' Friday closing price.
Last year ProLogis developed about $1.2 billion worth of facilities, and Schwartz said the company can double that.
"As we grow our business in Japan, as we grow our business in Europe and we continue to grow our business in North America, we increase our customer demand, and consequently our development-starts, which are very, very profitable," Schwartz said. "That's our highest return-on-equity business, and that funds our fund management business and that grows. But we need the equity to support that growth."
More than half the new development would occur outside the United States, Schwartz said.
ProLogis' counts among its top tenants FedEx Corp.(NYSE:FDX - News), Home Depot Inc. (HD.N,), and Unilever NV (Amsterdam:UNC.AS - News).
The deal, which calls for ProLogis to increase its shares by about 29 percent, sent the stock price of the Denver-based real estate investment trust down 2.6 percent. Catellus shares rose 13 percent and were the top gainers on the New York Stock Exchange.
The deal calls for Catellus shareholders to receive either $33.81 in cash, or 0.822 share of ProLogis, for each Catellus share. The terms say that 65 percent of Catellus shares will be swapped for cash and 35 percent for ProLogis stock, which translates into ProLogis issuing about 56.7 million ProLogis shares and $1.255 billion in cash.
ProLogis also will sell off about $700 million in office and other non-core Catellus or ProLogis assets and issue about $800 million in unsecured fixed debt.
Including the assumption of $1.1 billion of Catellus secured debt, ProLogis said the deal would have a total value of $4.9 billion.
"While the price tag is not cheap (what is these days?) and we would have preferred to see a partner involved, we believe it to be market pricing for a portfolio this size/quality," Banc of America analyst Ross Nussbaum wrote in a analysts note.
The purchase translates into an initial yield of about 6 percent.
The transaction is expected to boost ProLogis' estimated 2006 funds from operations -- a key measure of financial performance for REITs -- by 3 percent to 5 percent.
Analysts estimates for ProLogis 2006 FFO range from $2.75 to $3.05 per share. ProLogis said the acquisitions would boost those estimates to $2.87 to $3.15 per share.
In early afternoon activity, ProLogis shares traded at $49.66, down $1.26, while Catellus shares were up $3.73, at $32.96.
Catellus Chairman and Chief Executive Nelson Rising, will have a seat on the ProLogis board.
(Additional reporting by Emily Chasan)
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