Pure Industrial Real Estate (AAR-U.TO) – Merger Arbitrage – 1.2% upside

Current Price – C$8.04

Buyout Offer – C$8.10 + dividend C$0.026

Upside – 1.2%

Expiration Date – Q2 2018

Merger announcement

This low risk merger arbitrage situation was shared by Max.


Investment Summary

Blackstone announced its acquisition of Pure Industrial Real Estate Trust on Jan 9th, 2018. This opportunity presents a simple cash arbitrage to earn a 1.20% gross return in less than 2 months. The deal is non-problematic since vote has already gone through and regulatory reviews present no hurdles as the pro-forma entity holds very little market share in the North American industrial leasing space.

Deal Overview

On Jan 9, 2018, Pure Industrial Real Estate Trust (AAR-U.TO) and Blackstone (BX) announced an arrangement agreement whereby Blackstone Property Partners, a subsidiary of Blackstone, will acquire AAR-U for C$8.10/sh cash (there will also be C$0.026 dividend payout before closure). The bid values AAR-U at CAD$3.8bn enterprise value. The offer was unsolicited and unanimously supported by both sides. Closing is expected stated to be in Q2/18. I estimate closing to be April 18.


  • Blackstone to file for Competition Canada ARC and ICA by Feb 9th, (20 business days from agreement date)
  • AAR-U non-solicitation
  • 5 Business days right to match for Blackstone.

Key Conditions

  • AAR-U shareholder approval (2/3+)
  • Competition Act
  • Investment Canada
  • BPP Pristine and US REIT received tax opinion of KPMG
  • 10% Dissent Cap

Termination Fees

Termination fee of $77mm ($0.25/sh) payable by AAR if:

  • AAR-U suffers MAC;
  • AAR-U fails to reaffirm the current Blackstone bid in the event of a competing bid;
  • AAR-U enters into superior proposal;
  • Failure to close by Outside Date due to AAR-U’s misdoing or AAR-U shareholder vote rejection or AAR-U breach of warranties, representations or covenants when competing bid is present and not withdrawn prior to the termination of this agreement and within 12 months after a termination, AAR-U enters into a definitive agreement or consummates a transaction.

Reverse Termination fee of $220mm ($0.71/sh) payable by Blackstone if:

  • Blackstone breach of representation, warranties or covenants;
  • Blackstone failure to close the deal;

Key Dates

Dec 8, 2017 – Confidentiality Agreement

Jan 8, 2018 – Arrangement Agreement

Mar 23, 2018 – AAR-u shareholder vote

Q2/18 Expected Closing

Jul 9, 2018 – Outside Date


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