AMB Property and ProLogis agree to combine

The combination of real estate investment trusts AMB Property Corp. and ProLogis will create a global powerhouse in warehouses and other industrial real estate.

The companies said Monday they reached a deal to combine in an all-stock deal, after news leaked last week that they were in talks. Wall Street sees opportunities for significant savings from the merging operations of the two companies.

AMB and ProLogis own huge warehouse and distribution centers that dot the sides of interstate highways, enabling companies to ship products quickly. The combined company's largest customer will be the shipper DHL, with about 2.6 percent of the total rent.

Some analysts estimated the two control about 75 percent of the market in North America, and more in certain parts of the country, which will give the combined company stronger control over its prices.

The combined company will have operations in 22 countries. Both companies operate in Western Europe and Japan. ProLogis is established in the United Kingdom and Central and Eastern Europe, while AMB has a significant presence in China and Brazil.

AMB CEO Hamid R. Moghadam said during a conference call that the combined company will save about $80 million a year from merging administrative operations.

Lower expenses could push funds from operations, the most commonly used measure of earnings for real estate investment trusts, up by as much as 8.8 percent, said Jefferies & Co. analyst Steven Benyik in a note last week.

Moghadam will share leadership responsibilities with ProLogis CEO Walter C. Rakowich through the end of 2012. During the call, Rakowich said he would handle the integration of the companies. Moghadam, who will handle strategy and the private capital business during the integration period, will become sole CEO and chairman of the combined company after Rakowich retires.

The companies also have significant financing arms. "We're going to be in a great position to offer our private capital partners a wide range of industrial funds," Rakowich said.

Under the agreement, each ProLogis share will be converted into a 0.4464 AMB shares. That values ProLogis at $8.36 billion based on AMB Property's closing price on Friday. That means ProLogis investors are not getting a premium on the stock, which closed at $15.21 on Friday. Shares fell 29 cents, or 1.9 percent, to $14.91 in midday trading.

AMB rose 36 cents, or 1.1 percent, to $33.29.

The companies describe the deal as a merger of equals. But ProLogis shareholders will own 60 percent of the combined company, which will keep the name ProLogis and trade under its ticker PLD.

The deal is expected to close by the end of June.

The combined company will have its corporate headquarters in San Francisco, where AMB is based, with operational headquarters in Denver, where ProLogis is currently based.