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California and the West

Public Storage to Acquire Shurgard

March 08, 2006|Roger Vincent | Times Staff Writer

Public Storage Inc. agreed to buy Shurgard Storage Centers Inc. for $3.1 billion in stock, concluding a long-sought deal that would expand the nation's largest self-storage business, the companies said Tuesday.

Glendale-based Public Storage, known for its empire of orange-colored mini-warehouses for the masses, was rebuffed by Shurgard in 2000 and again last summer but kept up the pursuit of its smaller rival.

The acquisition eliminates one of Public Storage's largest competitors and paves the way for cost savings on operations and potential rental growth. It also gives the company a toehold in Europe, where the industry is still in its infancy.

Public Storage and Shurgard operate self-storage facilities in 35 of the same markets, including Los Angeles, Chicago, New York and Seattle, where Shurgard is headquartered. Together, they would operate more than 2,100 storage centers in 38 states and seven countries in Europe.

They are "a very logical combo," Deutsche Bank analyst Louis Taylor told Reuters. "You have the two biggest operators, a very fragmented sector and the ability to create some legitimate synergies by eliminating overlapping operating costs."

Under terms of the deal, Shurgard shareholders would receive 0.82 of a Public Storage share for every Shurgard share. That amounts to $65.16, based on Monday's closing price of $79.46 for Shurgard.

That's a 24% increase over Public Storage's previous offer. The deal is expected to close by the end of the second quarter. Shurgard's shareholders would own about 23% of the outstanding shares of the combined company.

Both stocks fell Tuesday, with Public Storage declining $2.29 to $77.17 and Shurgard slipping $1 to $62.60.

Shurgard President and Chief Executive David K. Grant said the two companies had been competing since the early days of the self-storage industry in the 1970s and "have a well-known history of dating but never consummating" the relationship.

After rejecting Public Storage's overtures last summer, Grant said, Shurgard's board hired consultants to examine its options, such as selling off portions of the company, before deciding a full sale was in its best interests. Public Storage's stock performance and influence from shareholders of both companies helped tip the scales, he said.

Shurgard's stock was "a substantial underperformer" until Public Storage made its run at the company last year, said analyst Craig Silvers of Bricks & Mortar Capital in Los Angeles.

The combined companies would have annual revenue of more than $1.5 billion. Public Storage has about 4,500 employees and Shurgard, 2,000, but there would be few layoffs, the companies said.

In addition to the share exchange, Public Storage would assume about $1.8 billion of Shurgard debt and redeem about $136 million of Shurgard preferred stock.

Shurgard CEO Grant and Chairman Charles Barbo stand to gross $12.7 million and $131.1 million, respectively, based on the most recent public filings of their stock holdings.

Times wire services were used in compiling this report.

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