Current Price – $34.57
Merger Consideration – $36.28
Upside – 5%
Expiration Date – 6th of September
This idea was shared by Jason
We think the current setup at LHO is an attractive “special situation”. LaSalle is a hotel REIT that has some very attractive assets in central urban locations but has been mismanaged. On 3/31/18, another hotel REIT, Pebblebrook Hotel Trust (PEB) proposed an all-stock merger which was quickly rejected. The merger valuation was raised by Pebblebrook in April ’18 and then Blackstone (BX) came over the top in May’18 with an all-cash offer of $33.50, which the board accepted.
Pebblebrook has since tried to sweeten the offer several times with premium/ a larger cash component. As we sit here today, a vote is set for 9/6 for shareholders to approve the BX offer and the board is reviewing the latest Pebblebrook offer. We think there is little chance the BX offer is approved by shareholders, particularly since 13D filer HG Vora has publicly said it won’t support the deal (8% owner) and Pebblebrook has accumulated a 9.8% stake of its own. Additionally both Glass Lewis and ISS recommended voting against BX deal, suggesting that at least index funds are also likely to vote against the BX deal (Vanguard and Blackrock own combined 29% of LHO stock)
We think this plays out one of two ways – either BX comes back with a superior cash offer or the BOD caves and accepts the sweetened Pebblebrook offer. In any case, we think downside is roughly (3%) back down to the existing BX offer and upside is 5%+ depending on how things develop between now and the 9/6 vote. Given the short timeline here to a catalyst, the IRR is in the 300% range under our base cash.