Cerberus may make Equity Office bid

A private equity fund is considering topping Blackstone Group’s previous $20-billion bid for Equity Office Properties Trust and its assumption of $16 billion in debt, in what would become the biggest leveraged buyout ever, according to a report Wednesday.

New York-based Cerberus Capital Management is considering a counteroffer worth more than $36 billion including debt, the Financial Times said, citing unidentified people familiar with the situation.

Shares of Equity Office rose 58 cents Wednesday to $48.75, above Blackstone’s $48.50 a share buyout offer, on speculation of a higher bid. Equity Office, the nation’s biggest office landlord, agreed Nov. 19 to Blackstone’s offer.

“Blackstone’s not the only player out there,” said Dean Frankel, a portfolio manager at Urdang Securities Management in Plymouth Meeting, Pa., which owned 2.4 million Equity Office shares at the end of September.

Equity Office spokeswoman Terry Holt and Cerberus spokeswoman J.J. Rissi declined to comment.

In the week the transaction was announced, the shares closed above the offer price three times on speculation that another buyer would attempt to top the Blackstone bid. The shares have not closed above the $48.50 offer price since Nov. 24.

Citigroup analyst Jonathan Litt said in a note to investors Tuesday that the strong business environment for office building owners, including their ability to charge higher rents, makes “a topping bid more likely.” Equity Office, whose chairman is billionaire Sam Zell, owns 580 office buildings spread from New York and Washington to Los Angeles.

Litt wrote in the report that a buyout offer of $50 to $52 a share was most likely if a rival bid emerged.

“A consortium of private equity firms and possibly a public REIT is the most likely source of a topping bid given the size of the transaction,” Litt said.