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Investors close $9B deal to privatize realty giant

Century 21's owner agrees to Apollo Group's buyout offer .

By New York Times
Published December 19, 2006

Realogy, the giant real estate franchisor that owns Coldwell Banker, Century 21 and Sotheby's International Realty, agreed Sunday to be sold to Apollo Group, the private-equity firm, for about $9-billion.

The deal marks the latest play by private-equity firms to buy into the real estate business just as it appears to have peaked. Just two weeks ago, Blackstone Group led a deal to acquire Equity Office Properties Trust, the nation's largest office building owner and manager, for about $36-billion, which was the biggest buyout in history.

The deal will be another huge payday for Henry R. Silverman, the architect behind Cendant, the conglomerate that Realogy was part of until it broke into four pieces this year in an effort to revive its flagging stock price.

Silverman, who had been criticized for huge paydays while he was at Cendant, stands to make about $135-million by selling all of his shares and stock options as part of the deal. Silverman, who is now the chairman and chief executive of Realogy, is expected to stay on until his contract expires at the end of next year. However, Silverman will not be an equity participant with Apollo in the deal, and his out-of-the-money stock options (those below the strike price) will be canceled.

Realogy is among the biggest players in the real estate field, taking part in a fourth of all home sales nationally. It has more than 300,000 agents among its franchises, almost three times the number of its closest rival, Re/Max International. It is also a player in commercial real estate through its Coldwell Banker Commercial arm.

Yet the company has seen its fortunes decline as the real estate market has slumped. Sales have dropped from 2005, a record year, and more homes are staying on the market longer. The rise in home prices has slackened to the slowest pace seen since 1998, according to government reports. Moreover, Internet-based brokerages and discount shops may have dealt a further blow to traditional real estate brokerages. Commissions have fallen from 6 percent a decade ago, to an average of 5 percent, although experts say that the slide had begun before the entrance of the discounters.

Long-term plan

Silverman said he had decided to pursue the deal with Apollo, which approached the company earlier this year, because, "we need to be owned by someone with a five-year time horizon," suggesting that many public shareholders, including hedge funds, have a "five-second horizon."

Under the terms of the deal, Realogy shareholders will receive $30 a share in cash, a premium over the stock's Friday closing price of $25.50. Apollo said it would commit $2-billion of equity to Realogy.

The deal is expected to close in the spring of 2007, but Realogy may solicit other buyout proposals until Feb. 14 in what is known as a "go shop" provision. Should it accept another offer, Realogy will pay Apollo a breakup fee.

Silverman said the company decided against a full auction because it could be "very destabilizing to the staff and customers." He said that the deal with Apollo meant "an outcome is guaranteed" that the company would be sold and that a potential higher offer could still be sought.

"Realogy's powerful real estate brands and their long heritage of leadership in the industry serve as a strong platform for future growth and we are pleased to again have it as part of our investment portfolio," Marc Baker, a partner at Apollo, said in a statement.

Private-equity deals

Other private-equity deals in the works or completed Monday:

- Under a financing deal, a consortium will invest a minimum of $1.4-billion and a maximum of $3.4-billion in struggling auto parts maker Delphi Corp. in exchange for common and preferred stock that will be issued in the first half of next year. The money will be used to fully fund Delphi's pension plan, which at the end of 2005 was underfunded by $4.1-billion, the company said. Companies involved in the deal are Appaloosa Management LP, Cerberus Capital Management LP and Harbinger Capital Partners Master Fund I, as well as Merrill Lynch & Co. and UBS Securities LLC.

- A private investment group including Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts and the Texas Pacific Group is offering $10.9-billion in cash for orthopedics maker Biomet Inc. of Warsaw, Ind. Biomet founder Dane A. Miller, who resigned as CEO in March, also could join the deal, the company said.

- Harrah's Entertainment Inc., the world's largest casino company, has agreed to a $90-per-share buyout offer from two private-equity groups, said a person with knowledge of the negotiations. The deal, offered by Apollo Management Group and Texas Pacific Group, values Harrah's at $16.7-billion and could be announced as early as today.

[Last modified December 19, 2006, 00:51:31]