ProLogis and AMB agree to merge into $14bn REIT

The industrial giants reach a ‘definitive agreement’ to merge their businesses. The value of their combined assets under management is expected to be approximately $46 billion.

ProLogis, the largest industrial property company in the world and one of its closest rivals, AMB Property Corporation, have announced a definitive agreement to combine businesses.

Denver-based ProLogis and San Francisco-based AMB said in a joint announcement they had reached a deal whereby ProLogis shares would be converted into 0.45 percent of newly issued AMB common shares ahead of the formation of a new REIT vehicle which would assume the ProLogis brand. The transaction, which is still subject to shareholder approval, is expected to close during the second quarter of the year.

The combined business, to be headquartered in AMB’s home city of San Francisco, is expected to have a pro forma equity market capitalisation of approximately $14 billion and gross assets owned and under management of $46 billion. The firms said in the announcement that the merger would be “immediately accretive”, generating approximately $80 million in annual general and administrative cost savings.

Following the tie-up ProLogis equity holders would hold approximately 60 percent of the combined company’s equity while AMB equity holders would hold the remaining 40 percent.

Once merged, the new business would manage a portfolio comprising approximately 600 million square feet of distribution space across 22 countries. Approximately 93 percent of the combined assets were leased as of the end of last year.

Both companies have large US holdings. ProLogis also has a sizeable footprint in the UK, Central and Eatern Europe, while AMB has a large exposure to Brazil and China. ProLogis previously has a large China presence but relinquished it in late 2008 to Global Logistic Properties, a company launched by former ProLogis chief executive officer and chairman Jeff Schwartz and GIC Real Estate, the property arm of the sovereign wealth fund of Singapore, as it sought to reduce its heavy debt burden.

Both companies also operate similar funding strategies whereby they raise capital via a range of vehicles, including commingled funds, across the risk spectrum. See PERE’s recent interview with AMB for further detail on its fundraising set up.

Hamid Moghadam, chief executive officer of AMB, said: “This merger is about two great companies coming together to create a stronger platform for sustainable value creation and growth. By joining forces, this merger will create a company positioned to be the leading global provider of logistics real estate — a blue chip REIT.”

Initially Moghadam and Schwartz’ replacement Walter Rakowich will become joint chief executive officers of the merged company, however Rakowich will retire at December 31, 2012 leaving Moghadam in charge of “shaping the company’s vision, strategy and private capital franchise’ going forward. Rakowich’s role in the interim will be to manage the integration process.

Similarly, William Sullivan and Thomas Olinger, chief financial officers at ProLogis and AMB respectively, will continue their roles until the end of 2012 when Sullivan will retire leaving Olinger as the sole CFO.

The news of the merger led to a mixed reaction from shareholders as shares in ProLogis fell by more than 4 percent while AMB shares rose by more than 2 percent in the hours soon after today’s announcement.