What happened
Shares of Duke Realty (DRE), a real estate investment trust (REIT) focused on industrial properties, rose dramatically in early trading on May 10, gaining as much as 18% at the open. The big news is that larger peer Prologis (PLD -0.91%) has gone public with an offer to buy Duke. But there's a lot of uncertainty here.
So what
Prologis began courting Duke Realty in November 2021, so discussions have been going on for some time without the realization of an agreement. In light of the unsuccessful private negotiations, Prologis has chosen to go public with its latest offer. What's currently on the table is an all-stock deal that values Duke Realty at $61.68 per share. That's a nearly 30% premium to the REIT's closing price on May 9 and still well higher than where the shares are trading after the big stock jump today (around $53.50 per share at roughly 10 a.m. ET).
Image source: Getty Images.
The reason for such a large discount to the acquisition offer is that, so far, it appears that Duke Realty isn't all that interested in being bought. Indeed, industrial properties are hot commodities right now and Duke's business is fairly strong, with notable internal growth prospects as it builds new assets from the ground up. To put just a couple of numbers on that, Duke reported record occupancy levels in the first quarter of 2022 and a massive 49% increase in rent growth on new leases. It also started eight new construction projects in the quarter. It's easy to see why Prologis might want to buy Duke, but it is less clear why Duke would want to sell itself.
Now what
Most investors shouldn't buy and sell stocks based on merger news. If you are looking at Duke Realty, it should be because of its strong business fundamentals, not the hope that Prologis gets its way and buys the company. While there's a "price for everything," given the current strength in the industrial property space, it wouldn't be surprising to see Duke drive such a hard bargain that Prologis chooses to walk away.
