Big Merger-AMB and Prologis Combine Forces

$5.7 Billion Deal Will Form a REIT with $46 Billion in Industrial Assets

AMB Property Corp. and ProLogis have agreed to combine through a merger of equals in a deal valued at $5.7 billion.

Though the merged company will operate under the name ProLogis, each ProLogis shareholder will be selling his or her share in exchange for 0.4464 of a newly issued AMB common share. The combined company will be an UPREIT. And ProLogis’ chairman and CEO has agreed to retire at the end of 2012.

The combined industrial REIT is expected to have a pro forma equity market capitalization of approximately $14 billion, a total market capitalization in excess of $24 billion, and gross assets owned and managed of approximately $46 billion.

The combined portfolio encompasses approximately 600 million square feet of modern distribution facilities in key gateway markets and logistics corridors in 22 countries. Both companies have substantial portfolios in North America, Western Europe and Japan. ProLogis is well-established in the United Kingdom and Central and Eastern Europe, and AMB has a significant presence in China and Brazil.

On a pro forma basis, the combined company’s owned and managed assets, excluding development, were on average approximately 93% leased as of Dec. 31, 2010, outperforming market averages over the last three years.

The combined company is expected to have significant liquidity, a strong balance sheet and a well-staggered debt maturity profile provided by long-standing lending partners.

“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,” said Hamid R. Moghadam, AMB CEO. “The combined company will be a global player active on four continents. This enhanced platform will enable us to better serve the needs of multi-market customers and provide them with both existing world-class facilities and unmatched development capabilities. The combined company will also be well-positioned to create more opportunities and value for both our shareholders and fund investors.”

“This combination will help create the most efficient, effective industrial real estate organization with the best, most diverse talent. And, we have developed an achievable plan to put these companies together seamlessly,” added Walter C. Rakowich, ProLogis CEO. “The merger of these two leading industrial platforms will advance a number of priorities already underway at each company. These priorities include improving efficiency and reducing costs by better aligning our portfolios through the reduction of non-core assets and the recycling of capital into higher growth opportunities; increasing asset utilization by stabilizing the operating portfolio; leasing up the development portfolio; and monetizing the land bank.”

Moghadam, AMB’s CEO, and Rakowich, ProLogis’ CEO, will serve as co-CEOs through Dec. 31, 2012, at which time Rakowich will retire, and Moghadam will become sole CEO of the combined company and will be primarily responsible for shaping the company’s vision, strategy and private capital franchise.

Rakowich will be principally responsible for operations, integration of the two platforms and optimizing the merger synergies. Until Dec. 31, Rakowich also will serve as chairman of the Board’s executive committee.

The transaction is expected to be immediately accretive, with approximately $80 million in estimated annual gross G&A savings, to be realized upon full integration, which is expected to occur over the 18-month period following the closing.

“We continue to see improvements in operating fundamentals across the globe with increasing occupancies and more positive net absorption,” said Rakowich. “As global demand picks up and trade activity returns to more robust levels, we believe our combined footprint and capabilities will allow us to better meet the real estate needs of our global customers and drive future growth.”

The all-stock merger is intended to be a tax-free transaction. Under the terms of the agreement, current ProLogis shareholders will hold 60% of the combined company’s common shares with current AMB holders having the remainder.

The parties currently expect the transaction to close during the second quarter of 2011. (credit m. heschmeyer-costar)

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