AMB and ProLogis: A Momentous Proposition

By Chris Mahowald, Daniel Shane
2023 | Case No. RE144 | Length 26 pgs.

“AMB and ProLogis: A Momentous Proposition” provides a sequel to the story of AMB’s experience in the Global Financial Crisis (GFC) that is outlined in RE134: AMB Property Corporation: Navigating Treacherous Waters

It is now October 2010, the world economy is recovering from the GFC, and AMB Property Corporation (AMB) encounters an unusual opportunity. It has the chance to acquire ProLogis (PLD), AMB’s top (and much larger) competitor. Ahead of the GFC, PLD had borrowed heavily to fund risky speculative development; now, post-GFC, the consequences of PLD’s hunger for return persist, and the company is no longer the darling it once was among REIT investors. PLD’s ailing stock price has created a possibility that the top two industrial REITs could merge (together “NewCo”) to become the world’s largest industrial REIT. NewCo would control over $44 billion of assets, boast a global footprint of nearly 600 million square feet of real estate, and own a significant presence across the world’s prime logistics corridors.

Hamid Moghadam, AMB’s co-founder and Chief Executive Officer, sees significant benefits from a merger. He believes savings in corporate G&A, coupled with lowered financing costs, can exceed $100 million per year, and anticipates the deal to generate further synergies by deepening NewCo’s customer relationships and providing a valuation boost for PLD’s fund management business. However, Moghadam also recognizes the complexities to executing a successful deal. AMB would need to absorb PLD’s lower credit rating, higher debt load (which came with a higher interest rate), and assets in lower quality markets that AMB had long avoided. Moghadam also knows that the starkly different cultures at AMB and PLD would make the integration process challenging, while also complicating the negotiation of deal parameters-especially whether to pursue a “merger of equals” or a traditional acquisition.

Moghadam knows that AMB needs to pursue an opportunity with this much potential, but has many decisions to make about its execution. How can he best ensure NewCo will maximize the benefits of a AMB-ProLogis merger, while mitigating the risks?

Learning Objective

  • Use methods for valuing REITs, including the use of net asset value (NA V), multiples of funds from operations (FFO), and a relative contribution analysis to establish the appropriate merger terms,
  • Explore key considerations for M&A in the real estate industry, how to value synergies, and approaches for evaluating deal risks,
  • Discuss the keys to a successful merger, assessing culture and other organizational challenges related to a merger, and develo2ing an integration plan, and
  • Highlight important M&A deal parameters, with an emphasis on the pros and cons of a merger of equals (MoE) vs. acquisition structure and ways to ensure NewCo would truly take the best of both companies.
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