The sign outside the Public Storage facility in Westminster
The sign outside the Public Storage facility is pictured in Westminster, Colorado, U.S. February 22, 2017. Reuters

Public Storage, the largest U.S. operator of self-storage properties, on Sunday unveiled an $11 billion hostile bid for Life Storage Inc, ratcheting up attempts to buy its smaller rival after its earlier takeover attempts were rebuffed.

Under the proposed all-stock deal, Life Storage shareholders would receive 0.4192 share of Public Storage for each Life Storage share or unit, which equates to $129.3 per share based on Public Storage's closing share price on Friday. The offer represents a premium of 19% based on the 20-day volume weighted average price of both stocks as of Friday.

Including debt, the proposed deal would value Life Storage at about $15 billion, making it one of the largest takeovers of 2023.

Glendale, California-based Public Storage said Life Storage had rejected an offer under similar terms in January, forcing the company to make its approach public. Public Storage first approached Life Storage in December.

"We have been disappointed that Life Storage's board has refused to engage constructively with us. Life Storage explicitly wrote on December 29, 2022 that Life Storage is 'not for sale,' reaffirmed that stance in a January 31, 2023 letter without offering any avenue for further dialogue, and has been unresponsive to our outreach," Public Storage said in a letter to Life Storage's management.

In a separate statement, Life Storage said it would review the proposed offer and "determine the course of action that it believes is in the best interests of all shareholders."

Public Storage also separately said that its board of trustees has increased its quarterly dividend from $2.00 to $3.00 per share.

GREATER SCALE

A deal between the two Real Estate Investment Trusts (REIT) would consolidate a fragmented industry and create a self-storage giant that would have the scale to tackle competition in a post COVID-19 world where demand for self-storage properties has waned as people have started returning to big cities.

Public Storage said the proposed combination would save costs and make Life Storage's business more efficient.

The latest moves from Public Storage could potentially put Life Storage in play and attract rival suitors that could include other REITs and large private equity firms like Blackstone and Brookfield, which have been aggressive buyers in that space, according to experts.

REITs were a bright spot for mergers and acquisitions in 2022, bringing in $83 billion in deal volume, the second highest for the sector since 2007, according to the National Association of REIT.

Last year, Prologis Inc, the world's largest warehouse operator, bought Duke Realty Corp for $26 billion. In that instance, Duke had initially rebuffed the approach from Prologis before agreeing to a sweetened deal.

Shares of Public Storage traded at $308.47 each on Friday, giving the California-based company a market value of nearly $54.2 billion. Buffalo, New York-based Life Storage's shares were at $100.58, giving it a market capitalization of about $9.4 billion.

Goldman Sachs & Co. LLC is serving as Public Storage's financial advisor and Wachtell, Lipton, Rosen & Katz is serving as the company's legal advisor.