AMB-PLD Merger Finally Comes Through - Analyst Blog

In a significant development in the industrial REIT (real estate investment trust) market, shareholders of both ProLogis (PLD) and AMB Property Corp. (AMB) has agreed to a 'merger of equals' to create a behemoth of sorts in the industrial real estate sector. The all-stock deal is expected to close on June 3, 2011, after erstwhile ProLogis shares are delisted from NYSE with the close of trading hours on June 2, and the combined company (renamed as ProLogis Inc.) begins trading on the NYSE under the ticker symbol PLD.

According to the terms of the agreement, each ProLogis share will be converted into 0.4464 of a newly issued AMB share, and the combined company will be treated as an UPREIT – an innovative business structure that forms an umbrella partnership between property owners and REITs. The combined entity would have a pro-forma equity market capitalization of approximately $15.7 billion.

The merged entity brings two of the most complementary customer franchises on the same platform in industrial real estate market and creates a $46 billion worth of asset pool at their disposal. The combined portfolio spanning approximately 600 million square feet of modern distribution facilities is located in key gateway markets and logistics corridors of 22 countries across the globe.

Both the companies have a significant presence in North America, Western Europe and Japan. While ProLogis is relatively strong in the U.K., Central and Eastern Europe, AMB has a considerable presence in China and Brazil.

The merger would lead to potential cost savings through operational synergies and would help create a stronger platform for value creation and sustainable growth. The transaction is expected to be accretive with immediate effect.

According to an earlier announcement, ProLogis expects the merger to result in approximately $80 million in annual gross G&A savings upon full integration. With the merger, the private capital business of both the companies is also expected to snowball, elevating it to a market leading position with a broad range of product offerings across the major markets, including the Americas, Europe and Asia and across the broad risk-return spectrum.

Both the CEOs of AMB and ProLogis will serve as co-CEOs through December 31, 2012, after which the CEO of erstwhile AMB will become the sole CEO of the combined company. The merged company's corporate headquarters will be located in San Francisco, while its operational headquarters will be located in Denver.

With the merger, former ProLogis shareholders will hold approximately 60% of the combined company's equity, while former AMB shareholders will hold the balance 40%. The combined entity will boast of unrivaled high-quality geographically well-located assets. The potential 'merger of equals' would arguably create a leading global provider of logistics real estate, serving multi-market customers with both existing world-class facilities and unmatched development capabilities.

The merged entity is expected to have the strongest balance sheet in the sector with ample liquidity and a spread-out debt maturity schedule that reduces pressure for repayment. The transaction is a win-win deal for both the participating companies and would remain as the first biggest deal since recession (involving publicly traded REITs) of this echelon in the real estate history.

We presently have a 'Neutral' rating on both ProLogis and AMB, which currently enjoy a Zacks #3 Rank that translate into a short-term 'Hold' recommendation indicating that the stocks are expected to perform in line with the overall U.S. equity market for the next 1–3 months.

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