Is one of the world’s largest commercial real estate services firms in the crosshairs of a $5 billion takeover bid? A European finance weekly reported yesterday that Paris-based Sodexho Alliance SA (SDX) has retained U.S. investment bank Lazard* to help it launch a $5 billion bid for Chicago-based Jones Lang LaSalle (NYSE: JLL). The article claimed that Sodexho will offer $137 per share for the company —a 28% premium equal to JLL’s closing share price last Friday.
Even if Sodexho isn’t interested in buying JLL, the commotion shines a spotlight on a real estate services firm that analysts say is poised for even more growth. That alone could persuade other suitors — perhaps deep-pocketed investors from the private equity sphere — to target the company.
Sodexho denies that any is pending. Needless to say, another multi-billion dollar merger would surprise nobody in the real estate space today. And if the Sodexho bid does formally materialize, it would also represent the second time in as many months that a European entity has targeted a U.S.-based real estate services firm. Last December, an Italian holding company backed by the Agnelli family, spent half a billion dollars for a majority stake in Cushman & Wakefield.
Why would a global cafeteria operation be hankering for JLL anyway? It may not be as odd a fit as it sounds. After all, Sodexho is one of the largest providers of food and facilities management in North America and it operates in 75 countries outside of the U.S. If Sodexho could leverage the power of JLL’s 1 billion sq. ft. global empire of managed properties, a merger could be accretive for both sides.
One of Sodexho’s primary business lines is corporate cafeterias. There are clearly a few of these scattered throughout JLL’s 982 million sq. ft. portfolio of commercial space as that total is weighted towards office space. JLL also manages several municipal retail destinations, among them high-traffic areas like Manhattan’s Grand Central Terminal and Union Station in Washington, D.C. The JLL Web site claims that the firm is the largest third-party shopping center manager with a 38 million sq. ft. portfolio of domestic centers.
It’s doubtful that a $5 billion bid could simultaneously bag both JLL’s real estate services and investment management arms. LaSalle Investment Management oversees roughly $40.6 billion in commercial assets, making it one of the largest investment managers in the world.
Analyst Will Marks of JMP Securities believes that JLL is positioned well enough to fend off the bid. Marks calls the $5 billion price — roughly $137 a share — “pretty steep.”
“There’s certainly some operating risk involved when you offer such a steep premium for a real estate services firm,” says Marks, who has a “strong buy” rating on JLL. “But we see a pretty strong growth story ahead for Jones Lang LaSalle.”
On Feb. 2, Marks raised his price target from $97 to $122, citing above consensus earnings per share during the fourth quarter. Fourth quarter revenue growth was also up 41%, well ahead of Marks’ seemingly aggressive 21% projection.
*Full disclosure: NREI’s parent company is controlled by Bruce Wasserstein, Chairman of Wasserstein & Co. and Lazard