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AMB Property Corp. (AMB-N) has struck a deal to buy rival ProLogis (PLD-N) for $8.7 billion US in stock, combining the two largest U.S. owners of warehouse and distribution centers around the world in one of the biggest real-estate transactions since the financial crisis.
The agreement comes as ProLogis, the larger of the two companies, has been struggling with debt. While both companies operate in the United States, the deal will give AMB a large presence in the UK and Eastern Europe.
The new company initially will be run by the chief executives of AMB and ProLogis. AMB CEO Hamid Moghadam will become sole CEO at the end of 2012. The company will be based in San Francisco, home to AMB.
Warehouses are on the cusp of a recovery after at least two years of rising vacancies and falling rent. AMB and ProLogis serve customers who make or ship goods around the world. Their buildings, sometimes the size of more than a dozen football fields, store goods from drugs to shampoo to car parts.
"As bigger entities, they have more clout to negotiate with their tenants, and once the market turns, nobody is better positioned than these guys to grow," said Morgan Keegan analyst Stephen Swett, who follows real estate investment trusts.
The combined company will operate on four continents and in 78 percent of the global economic market.
ProLogis owns or manages about 435 million square feet of real estate, mainly in the United States, Europe and Japan. AMB has about 158 million square feet of space in the United States, China, Brazil and Mexico.
"If you look at the past real estate M&A deals, it's only about scale and getting bigger," Moghadam said.
The deal is also expected to make a company with a bigger balance sheet and lower cost of capital, said Walter Rakowich, CEO of Denver-based ProLogis.
The pact, expected to close no later than the end of the second quarter, may save $80 million annually, or about 20 percent of the companies' overhead, Moghadam said.
Neither CEO would say how long the two have been in talks or how many jobs would be cut. The two companies disclosed last week they were in merger discussions.
ProLogis said on a conference call that it would sell assets to exit some markets. The companies did not provide details.
The combined company is expected to have a stock market value of about $14 billion US, with AMB comprising $5.7 billion and ProLogis $8.7 billion, Moghadam said.
Under the terms of the deal, each ProLogis common share will be converted into 0.4464 of a newly issued AMB common share, the companies said.