Shares of Chambers Street Properties (NYSE: CSG) declined by more than 10% at market open, but have since recovered to trade down by 8%.
The drop in the share price was likely in response to its announcement that it intends to merge with Gramercy Property Trust ( GPT ) in an all-stock transaction.
Upon completion of the merger, Gramercy shareholders will receive 3.1898 shares of Chambers Street Properties for each share of Gramercy. Gramercy CEO Gordon DuGan will stay on as CEO of the combined firm.
The combined company expects to save $15 million annually, or $0.04 per new share, from synergies and expense reductions as a result of the merger.
It's been a puzzling few months for Chambers Street Properties shareholders. The office and industrial REIT has operated without a permanent CEO since March 2015. Prior to the merger announcement with Gramercy, it was expected that Chambers Street Properties was on the auction block itself as a potential acquisition target.
Shareholders are clearly showing their discontent with the merger agreement, allowing shares to trade lower by 8% after the announcement. Notably, the deal works out in such a way that Chambers Street Properties shareholders are entering the agreement at a price that values its stock at a discount to its previous closing price.
Chambers Street Properties closed June 30 at $7.95 per share. Gramercy closed at $23.37 per share. Dividing Gramercy's last closing price by the conversion ratio results in a valuation of $7.33 per Chambers Street Properties share, a discount of roughly 8% to its closing price on June 30.
Opposition to the deal may only go so far. The terms include a termination fee that would require Chambers Street Properties pay Gramercy $61.2 million if it backs out of the arrangement, in addition to $20 million of expense reimbursements. The closing is subject to customary terms and conditions, including the approval of a majority of Gramercy and Chambers Street shareholders.