Morgan Stanley ultimately will decide if the Crescent name goes or stays and what assets, save for those now under contract, will remain on the sales block. The inside details for the merger will be in the next SEC filing, which is expected to hit in four days. Last fall, speculation started that a private play was in the cards for the Fort Worth-based REIT. GlobeSt.com has confirmed that's just what Morgan Stanley has planned.

Morgan Stanley's all-cash offer calls for $22.80 per share and assumption of liabilities to bump the all-in bid to $6.5 billion. Crescent stock was $21.62 per share when the NYSE bell rang at yesterday's close.

"My reaction is it's not enough. I think Morgan Stanley is getting Crescent on the cheap," a REIT analyst and long-time Crescent watcher, asking to remain anonymous, tells GlobeSt.com. "Because of the vagaries of the market, it's probably a fair price, but it represents a price that is on the cheap side for Crescent."

Morgan Stanley and Crescent executives inked the definitive agreement yesterday, unleashing the news within hours of Chicago-based Grubb & Ellis Co. and NNN Realty Advisors Inc. of Santa Ana, CA announcing their marriage. Executives for New York City-based Morgan Stanley and Crescent aren't granting interviews until the deal's done.

In yesterday's press release, Crescent says the purchase price is tantamount to a 12% premium over its 30-day average NYSE closing price. The deal includes assumption and refinancing of $3.1 billion of consolidated and unconsolidated debt in Series A and Series B preferred shares, which have an aggregate liquidation of $440 million.

The market analyst says the swing factor in the deal was the valuation of the residential platform that Crescent has with East West Partners of Avon, CO. And underneath it all is the inescapable fact that Crescent would have had to invest several more quarters into monetizing its assets. Instead, it made a preemptive decision that puts "cash in hand today," the analyst explains. "From an absolute pricing standpoint, it's on the cheap side. But on a risk-adjusted basis, it's a fair deal for shareholders."

Dividends have been stopped in the wake of the Morgan Stanley buy-out. "The primary goal of the strategic plan we announced on March 1, 2007 was to maximize value for our shareholders," John C. Goff, the REIT's vice chairman and CEO, says in the press release. "This transaction accelerates the realization of that goal by delivering value to our shareholders more quickly and with greater certainty."

Crescent's board of trust managers has unanimously approved the transaction, with Richard E. Rainwater, founder and chairman, entering into an agreement to back the plan with his 14.5% stake, representing more than 16.6 million common shares. Goff owns 4.6% of the stock or more than 4.8 million shares. Executive officers and trust managers own, in all, 21.2% or 23.75 million shares. BlackRock Inc. of New York City and Capital Research and Management Co. of Los Angeles each has a 6.5% interest, representing more than 6.32 million shares apiece, and Vanguard Group Inc. of Malvern, PA has 5.9% or 5.75 million shares. As of late April, there were 102.8 million outstanding shares. The date of the shareholders' vote has yet to be set.

For the past year, Crescent has been wheeling and dealing its portfolio. Its first-quarter report with the SEC shows 51 office properties, totaling nearly 22.4 million sf of 91.4%-leased space, in its continuing operations, and 20 assets with 5.2 million sf in discontinued operations. It is the sole owner of 35 office assets with 10.9 million sf and a joint venture partner in 16 others totaling 11.4 million sf. It also owns 32 resort residential properties, which were up for grabs, and seven resort properties with 1,854 rooms and one office building, which are under contract to Chicago-based Walton TCC Hotel Investors V LLC. Crescent also is holding a contract with Schenectady, NY-based Trimarchi Management for 3.1 million sf of its 5.6 million sf of class A office space in Dallas. The in-place contracts will be honored, a REIT spokesman confirms.

"Crescent is a unique company operating in a wide range of business lines that are familiar to Morgan Stanley," says Michael Franco, the buyer's managing director and co-head of the Americas. "We recognize the valuable contributions that Crescent's people have made to build the company's franchise and we look forward to working closely with them on a smooth transition."

Crescent's financial adviser was Greenhill & Co. LLC and Pillsbury Winthrop Shaw Pittman LLP its legal adviser. Morgan Stanley was financial adviser to Morgan Stanley Real Estate, with Goodwin Procter LLP and Jones Day as its counsel.

Instant Insights /

Morgan Stanley Takes Crescent in $6.5B Play

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