CreXus Rejects $254 Million Buyout Bid From Sternlicht's Starwood Property

CreXus Investment Corp. (CXS) rejected a $254 million buyout offer from Starwood Property Trust Inc. (STWD) and proceeded with a share sale that may preclude a deal.

CreXus’s board voted against the bid, valued at about $14 a share, the New York-based company said in a statement today. It sold 50 million shares for $11.50 a share after the close of regular U.S. trading to fund the purchase of a real estate loan portfolio from Barclays Plc. (BARC)

Starwood, the Greenwich, Connecticut-based real estate investment firm founded by Barry Sternlicht, planned to withdraw its proposal if the stock sale occurred, according to a statement today. Its offer, aimed at creating the largest U.S. commercial-mortgage real estate investment trust, was about a 20 percent premium over CreXus’s share price before the bid was announced earlier today.

“CreXus stockholders would receive stock in a significantly more liquid entity without facing the substantial book value dilution of CreXus’s pending equity offering,” Sternlicht said in an earlier statement today.

CreXus plans to pay $586 million for the Barclays real estate loan portfolio. The holdings include commercial mortgages, subordinate notes and mezzanine debt backed by such properties as hotels, offices, condominiums, apartments and retail real estate, CreXus said March 21.

Sale Proceeds

Net proceeds from the share sale today are expected to be about $539 million, the company said in a statement.

Starwood is making loans and buying debt tied to offices, shopping centers, apartments, warehouses and hotels as U.S. commercial property prices are 43 percent below their 2007 peak, according to Moody’s Investors Service.

CreXus shares gained 19 cents, or 1.6 percent, to $12.15 at 4:15 p.m. New York time, after earlier advancing as much as 13 percent. Starwood fell 11 cents to $22.95.

Buying Debt

Sternlicht, in a letter to CreXus’ board earlier today, wrote that the company’s shares have generally traded at a discount to book value because of its emphasis on buying debt.

“Our initial impression is that this offer is a good one” for Starwood, Joshua Barber, an analyst at Stifel Nicolaus & Co. in Baltimore, wrote in a report earlier today. Barber predicted the proposal would be rejected at $14 a share and said he hopes Starwood doesn’t start a bidding war.

CreXus first sold shares to the public in September 2009, a month after Starwood. Starwood said it would exchange 0.61 shares of its common stock for each share of CreXus. The combined company would be the largest U.S. REIT specializing in commercial mortgages by stock-market value, Sternlicht said.

Annaly Capital Management Inc. (NLY), which focuses on buying residential bonds, is the biggest mortgage REIT. The New York- based company owns 25 percent of CreXus.

To contact the reporter on this story: Brian Louis in Chicago at blouis1@bloomberg.net.

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net.

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