Yale School of Management

Taking EOP Private


In February of 2007, The Blackstone Group closed the most talked about leveraged buyout of a company since KKR took over RJR Nabisco in 1988. Blackstone, a private equity firm founded in 1985 by Wall Street legends Pete Peterson and Stephen A. Schwarzman, inked a $39 billion deal with Equity Office Properties Trust, a real estate investment trust (REIT) founded by veteran financier and real estate entrepreneur Sam Zell.

With 594 properties nationwide, EOP was the nation’s largest office landlord, with prominent properties in most major cities across the country. Despite EOP's dominance of the REIT market, analysts had historically undervalued EOP, with some pegging it at just $35 per share last spring. However, Blackstone saw something in EOP that the analysts didn’t, and in November, Blackstone offered to buy EOP for $48.50 per share. It was the “Godfather price” that EOP executives had been looking for, and the company’s board of directors agreed to sell.

Blackstone's buyout of EOP appeared to be a done deal until January 2007, when Steven Roth of Vornado Realty Trust threw in a bid of $52 per share for EOP. In addition to forbidding Blackstone from shopping EOP properties around before the deal closed, Zell had purposely set the deal termination fee low to attract other offers. His plan to create favorable conditions for an auction worked. Over the next few weeks, Vornado and Blackstone engaged in a bidding war that ended in February with Blackstone winning EOP for $55.50 per share. Blackstone paid EOP shareholders $23 billion in cash, and assumed the company’s $16 billion debt.

The deal highlighted the maneuverings of two legendary financiers at the top of their games. Schwarzman, who began his career in mergers and acquisitions at Lehman Brothers, is lauded for his drive and determination. After being made a partner of the firm at the age of 31, Schwarzman left Lehman to found Blackstone with Peterson. Together, the two Wall Street mavens raised record funds and built Blackstone into a private equity powerhouse.

Zell, who began buying apartment buildings during law school, is respected for his ability to spot opportunities in the market that others overlook. He made a fortune investing in distressed properties and companies during the 1970s and 1980s, and dubbed himself “Sam the Grave Dancer” because of it. Although he is widely known as a real estate mogul, Zell has held controlling positions on the boards of numerous other companies over the years, and after the EOP deal closed, he led the high-profile buyout of the The Tribune Co.

Besides the astronomical price tag of the EOP deal and the larger-than-life personalities of the dealmakers, the buyout thrust two powerful investment vehicles into the spotlight. REITs debuted in the 1960s, but they didn’t catch on with the investing community until the early 1990s. At that time, real estate entrepreneurs burdened with debt began to reach out to the public markets for financing and, in turn, they gave investors the opportunity to include real estate in their portfolios. Zell was a leading advocate of REITs as a corporate form for investing in real estate.

On the other side of the EOP deal is private equity, an aggressive business rooted in the corporate takeover movement of the 1980s. In the 2000s, private equity firms were experiencing a torrential deal flow as new regulations on public firms, unrealistic shareholder expectations of consistent quarterly gains, and large amounts of free-floating capital had combined to make leveraged buyouts attractive. No one is quite sure if or when this boom in private equity deals will subside, but one thing is certain: Blackstone has become one of the top private equity firms on Wall Street today.

Articles, government documents, maps and videos are provided to help you understand the EOP deal, and the issues and personalities involved.

Raw, online
Teaching Note:
Suggested Citation:

Allison Mitkowski, William Goetzmann, and Jaan Elias, “ Taking EOP Private,” Yale SOM Case 07-024, April 04, 2007

  • Private Equity
  • Asset Management
  • Financial Regulation
  • Investor/Finance
  • Leadership & Teamwork