First Potomac stockholders will receive $11.15 per share, a discount of about 2 percent from the previous day’s close of $11.35. On a combined pro forma basis, the merged company will have an enterprise value of $4.3 billion with gross assets of $4.1 billion.
The transaction, which is expected to close before the end of 2017, almost doubles Government Properties’ ownership and operation of office properties leased to government and private sector tenants in the metropolitan Washington, D.C., market.
In a conference call, David Blackman, president and COO of Government Properties, noted that the Washington office market, which is one of the largest in the country and the top beneficiary of government spending, has lagged the recovery seen elsewhere in the country. The region is now in a rising, recovery phase, he said.
Blackman noted that the increased scale better positions Government Properties to absorb certain lease expirations that might have impacted the company negatively after 2018, absent the merger.
Meanwhile, Robert Milkovich, CEO of First Potomac, noted that the company has spent the last 18 months refining its portfolio, strengthening its balance sheet and enhancing corporate governance.
David Auerbach, a senior trader and REIT specialist at Esposito Securities, LLC, described the deal as “an interesting transaction, as it truly puts [Government Properties] on investors’ radars.”
John Guinee, managing director at Stifel Nicolaus, added that the transaction was a “good deal” for First Potomac shareholders. Guinee also said he did not expect a higher counter offer, given that the deal was widely marketed.