Toronto-based Starwood is vying to acquire Dallas based Milestone for$1.3 billion.
As per sources familiar with the situation, Starwood Capital Group has entered in talks with Milestone Apartments Real Estate Investment Trust, to raise its bid for its $1.3 billion (C$1.7 billion) for the acquisition.
This development comes in the wake of Institutional Shareholder Services (ISS) recommending Milestone recommending Milestone shareholders to vote against the move.
According to sources, Starwood and Milestone could potentially agree to a higher price and make an announcement early this week. However, sources have cautioned that there is no certainty to both parties agreeing to the deal at a higher price.
The sources preferred the cover of anonymity since the talks are confidential.
Milestone and Starwood declined to comment.
Earlier this year, Milestone had agreed to be acquired by Starwood for $16.15 per Milestone unit in an all-cash deal.
Based on the current exchange rates, this amounts to a premium of 9.2% above the units’ closing price of C$19.66.
As per Manash Goswami, portfolio manager at First Asset Investment Management Inc, the offer amount was insufficient.
“We would like to see a bid north of $17. At $17, it is about (a) 10 percent premium to consensus net asset values out there,” said Goswami.
First Asset owns Milestone shares.
Dallas-based Milestone, which in 2013 went public in Toronto, owns and manages apartment properties which typically house blue-collar workers across the U.S. Southwest and Southeast.
Led by Barry Sternlicht Starwood Capital has focused on real estate and manages assets of nearly $52 billion.
Last week, Glass Lewis, a proxy advisory service encouraged shareholers to vote for the acquisition, while ISS advised against it.
“The fact pattern in the transaction indicates speed and certainty were prioritized over price, apparently out of concerns that cyclical factors will put pressure on REIT valuations,” stated ISS in its report.
In response, Milestone said its “board and special committee engaged in a comprehensive process to maximize value for the REIT’s unitholders.”
As part of its report, Glass Lewis mentioned “the purchase price represents a compelling value at which Milestone unitholders can cash out their investment in the REIT and immediately realize an assured value, in cash, at a meaningful premium.”
The deadline for vote on the existing bid is March 3.
($1 = 1.3095 Canadian dollars)