$26B Prologis-Duke deal ends cold war

Everything has a price.

For Duke Realty, the industrial powerhouse that had fended off a takeover by Prologis for months, it was $26 billion.

San Francisco’s Prologis will acquire Indianapolis-based Duke, which controls some 153 million square feet in 19 markets, in an all-stock deal expected to close in the fourth quarter, according to a Monday announcement.

Clouds on industrial real estate’s horizon might well have motivated both sides, observers said.

The transaction ends a cold war between the warehouse giants that began with Prologis’ first volley last fall. In the intervening months, Prologis was said to have increased its premium by nearly half before finally going public with a $24 billion offer in early May out of frustration with Duke’s failure to be “substantively engaged.”

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At a REIT industry conference last week, Duke and Prologis executives were stubbornly silent, deflecting investors’ questions about the likely outcome. But in the Monday announcement, Duke chair and CEO Jim Connor, who will join Prologis’ board when the deal closes, said Duke has “always respected” its suitor.

“After a deliberate and comprehensive evaluation of the transaction and the improved offer, we are excited to bring together our two complementary businesses,” Connor said.

Prologis, which has amassed a nearly 1 billion-square-foot portfolio through a series of M&A deals over more than a decade — most recently buying DCT Industrial for $8.5 billion — is planning to keep 94 percent of Duke’s assets, spanning Southern California, New Jersey, South Florida, Chicago, Dallas and Atlanta. It will also keep its 1,200-acre land bank.

Despite the massive size of the firms, Prologis claims fitting them together will not be difficult.

“This integration effort is straightforward from our perspective, and our execution confidence is high,” said Gene Reilly, Prologis’ chief investment officer.

The transaction comes at a potential turning point for one of commercial real estate’s hottest segments.

The industrial business rallied during the pandemic as consumers accelerated their shift to online vendors, which rely on warehouses to distribute goods. But rising interest rates have decimated consumer sentiment in recent weeks and forced heavily inventoried e-commerce players like Amazon to pull back on space — at least temporarily.

“I’m not at all concerned about Amazon, because I know that e-commerce is a big driver,” Moghadam said Monday on a conference call. “It’s not the only driver, but it’s a big driver. And if anything it is getting broader today.”

Within REIT industry ranks, there was some surprise that the deal lacked a cash component, given macroeconomic conditions. Al Otero, portfolio manager at Armada ETF Advisors, posited that Amazon’s pullback may have ultimately swayed Duke’s shareholders.

The deal likely is as much about cost savings and “synergies” — industry speak for efficiencies — as growth, he said.

Duke’s board approving the deal “sends a message that golden days for industrial might be behind us,” Otero said in a statement.