Apollo Group to acquire Realogy for $9 billion

Private equity firm Apollo Group is all set to buy out Realogy, the real estate giant that owns Coldwell Banker, Century 21 and Sotheby’s International Realty. Sources reveal that the deal was a leveraged buy-out worth $9 billion including debt.

Leon Black, the former Drexel Burnham Lambert executive, who is at the helm at Apollo, is offering to pay Realogy investors $30 a share, an 18 percent premium to Realogy's closing price of $25.50 on Friday. This values Realogy at about 12 times estimated earnings before interest, tax, depreciation and amortization for 2007.

Under the terms of the deal, Realogy may ask for other buyout proposals until February 14 in what is known as a “go shop” provision. In the event of Realogy accepting any other offer it will pay Apollo a breakup fee.

Realogy, along with the rest of its former Cendant brethren, has long been seen as a potential target for a private equity buyer. The acquirement symbolizes a medium-term recovery of the real estate in the US. A couple of weeks ago Blackstone Group led a $36 billion deal to acquire Equity Office Properties Trust, for about $36 billion, the biggest buyout in history.

Realogy chairman and chief executive Henry R. Silverman, who owns 3 per cent of Realogy, will be stepping down as chief in December 2007 and will be replaced by Richard Smith, the vice-chairman. The deal, however, will be a huge payday for Henry R. Silverman.

Assigning logic to the deal, Silverman said, “Our earnings are going down,” Mr. Silverman said. “We’re probably not going to see a recovery until 2009. This deal is an insurance policy…We need to be owned by someone with a five-year time horizon.”

Apollo was confident that it was strongly positioned to take Realogy forward. The former is no alien to the company or the industry. In 1997, Apollo and Cendant formed the National Realty Trust, as a joint venture to consolidate various fragments in the residential real estate market.

Marc Becker, a partner at Apollo, said that Realogy had powerful real estate brands with long heritage of leadership in the industry and huge potential for future growth. He claimed that Apollo was pleased to have Realogy as part of its investment portfolio.