Wednesday, February 7, 2007

The Fat Lady Sings

Well, it's over.

It appears that Steve Schwarzman and The Blackstone Group have won the bidding war for Equity Office Properties Trust today, as EOP shareholders approved the $39 billion deal in the biggest LBO ever. I guess I am happy for Steve and his colleagues, but I suspect there are a lot of unhappy people out there.

First, of course, must be Steve Roth, Chairman and CEO of competing bidder Vornado, who has missed out on yet another juicy whale of a target after bemoaning all the previous whoppers that got away. He must be feeling a little like Rodney Dangerfield, since the equity component of his bid never did get any respect. I suppose he can take some consolation from the fact that his stock is up over 15% since Blackstone announced their original deal with EOP, and Vornado shareholders seem to be drowning their sorrows in Cristal champagne by bidding up VNO shares over $1.3 billion today alone. He may also get several smaller bites at the same apple, now that Blackstone will be scouring EOP's portfolio for properties to dispose of to reduce the buyout's crushing debt burden.

Second, I imagine Blackstone's investment bankers are beginning to break into a flop sweat of epic proportions, now that they face the prospect of raising eleventy-three billion smackeroos in third party debt and equity to make sure Blackstone's check doesn't bounce. But, really people, who cares what happens to investment bankers anyway, other than New York magazine and The Daily Deal? Besides, we all know that it must have been quite a brawl among the bankers in Blackstone's locker room shower over who got to bend over and pick up the soap first, n'est-ce pas?

Third, I imagine there might be a little queasiness among Blackstone's limited partners now that it has won the deal after boosting the equity component of its bid by over 14%. Everyone is old enough to remember (or clued in enough to have read Barbarians at the Gate) what happened to the returns earned by the last "biggest buyout of all time," RJR Nabisco. Nevertheless, these are many of the same LPs who are writing checks by the bundle to buyout groups like Blackstone that are setting up funds to invest in infrastructure, of all things. You know: assets that are lucky to earn mid-teens equity returns after having been leveraged 95% or more.

I am sure there are other unhappy campers, too. All I can say is that I am relieved that Blackstone will be able to consummate its undying passion for EOP in the end. I don't think I could have taken another media circus like the Psycho Astronaut Kidnapping Drama in one week. I mean, the image of Steve Schwarzman, disguised in a fright wig and trenchcoat, driving across country in diapers to confront Steve Roth in Vornado's parking lot with an air gun and pepper spray just gives me the shivers.

Wait a minute . . . Vornado and Blackstone are both headquartered in Manhattan, so Steve wouldn't have needed a diaper to cross town in his Lincoln Towncar anyway. Whew.

Say, do you think the fact that Schwarzman and Roth both work in the same town and probably both go to the same black tie charity events had anything to do with the ferocity of the bidding war over EOP?

No prizes for the correct answer.

© 2007 The Epicurean Dealmaker. All rights reserved.