Grubb & Ellis Co. (GBE) announced on 2/22/07 that it had agreed to purchase a large office building they would hold for a future sale to Grubb & EIlis Realty Advisors (GAV), the blank check acquisition company they sponsored. They had previously made two other large real estate purchases for the same purpose. In the 2/22 release they stated "the aggregate value of the Danbury Corporate Center together with that of Abrams Centre in Dallas and 6400 Shafer Court in Rosemont, Ill., is sufficient to constitute Realty Advisors (GAV) business combination, if the purchase of such properties from the Company is approved by Realty Advisors board of directors and stockholders".
This third purchase is expected to be completed on April 17. Sometime after that, GAV should announce their acquisition of these three properties from GBE and name a date for the shareholders to vote. If more than 20% vote against the acquisition, GAV is dissolved and the money in trust (app. $5.65 per share) is distributed to the shareholders. GBE and GAV insiders are excluded from this distribution and all warrants become worthless.
I have been burnt a couple of times by shareholders voting down an acquisition, making the warrants worthless, but think this is highly unlikely with GAV for the following reasons:
1. Grubb & Ellis Co.(GBE) purchased 1,666,667 units @ $6.00 each in the IPO - a $10 million investment.
2. Grubb & Ellis Co. purchased 4,645,531 warrants on the open market between 5/4/06 to 8/23/06 paying between .40 - .60. They had originally announced they would spend $3.5 million buying warrants under $.70. But it looks like around $2.5 million was spent .
3. Insiders in the GAV IPO invested $2.5 million to purchase the 20% of shares insiders obtain in these acquisition deals. They paid $0.43 per share which is highly unusual. In most of the acquisition IPO's , the insiders usually pay a penny or less for their 20% of shares.
4. This totals a $15 million investment by GBE and GAV insiders, all of which would be lost if the acquisition is voted down by shareholders.
5. Top level executives from the mother company were placed in charge of GAV. So very experience commercial real estate executives from both GAV and GBE were involved in the selection of the real estate purchases.
It would seem reasonable to expect the two companies to structure the deal in such a way to ensure receiving a favorable vote. If you agree, then it is a great buying opportunity to acquire GAV warrants which have been recently selling in the .30 -.35 range. Once the acquisition by GAV is completed and approved by the shareholders, these warrants should sell in the .80 to 1.20 range and even higher if the market likes the deal. |
