Hostile Bid Launched for REIT Chateau

A company led by Chicago property developer Sam Zell on Wednesday launched a $400-million hostile takeover bid for manufactured-home park operator Chateau Properties Inc.

The bid was the latest of several for Michigan-based Chateau, a real estate investment trust that manages communities made up of manufactured homes, and analysts said Zell’s chances of success were good.

Zell’s Manufactured Home Communities Inc. offered $26 a share in cash for Chateau’s outstanding common shares, operating units and options, or about $400 million.

The bid comes after Chateau failed to respond to an earlier, similar bid by Zell that offered cash or stock. The latest bid competes with a stock offer from Sun Communities Inc. worth about $372 million. Chateau already has a definitive agreement to merge with ROC Communities Inc.

Chateau’s stock closed up 25 cents at $26.375; Manufactured Home’s shares lost 12.5 cents at $18.50. Both trade on the New York Stock Exchange.

Analysts who specialize in real estate investment trusts said Zell has a good chance of success.

“I think he probably has a pretty good shot at it,” said William Acheson, an analyst for Smith Barney. “It’s difficult for a board to nix an all-cash deal that is very attractive.”

Manufactured Home “said all along that if the board sends signals that it’s not going to be accommodating, they would take it straight to shareholders,” said BT Securities analyst Kevin Comer.

Clinton Township, Mich.-based Chateau said it is continuing to consider unsolicited takeover proposals and also noted that its articles of incorporation prohibit a person or entity from owning more than 7% of the firm’s outstanding common stock without board approval.

Analysts, however, said the 7% rule was designed to assure that the company maintains its tax-preferred status as a real estate investment trust, or REIT. To maintain such status, the five largest investors cannot own a total of more than 50% of the company, they said.

Chateau’s board members are mainly holders of operating partnership units.