ROTTERDAM, NETHERLANDS-Locally-based REIT/FBI VastNed Office/Industrial and Dutch peer Nieuwe Steen Investment have taken up merger discussions to form a company that would hold $3.2 billion assets under management in office and retail property. NSI is offering a share deal pitched at around 10% over closing price.

After NSI approached the twin VastNed companies, with combined market cap at around $295 million last Friday, the latter agreed to enter conversations in line with fiduciary duty, while investigating all possible alternatives. NSI has offered a merger through a share swap. It already holds a stake in VastNed O/I’s subsidiary Intervest Offices and currently has a portfolio of $1.7 billion assets under management. Both firms emphasized that these discussions are still in an exploratory phase, and that there is no guarantee whatsoever that a transaction will occur.

The deal, at a 9.7% premium to VastNed O/I's closing price on Friday, marks a change in strategy for the firm, reported Reuters. NSI has looked to Switzerland, France and Germany to expand abroad and build a portfolio of office and retail properties since Israeli investment group Habas bought a 21% stake in 2007. Petercam analyst Stephan Van Weeren said NSI was late into France, found that Switzerland is too expensive, and has struggled to get a sizeable portfolio in Germany. NSI proposes an exchange ratio of 0.85 NSI share for every VastNed O/I share, valuing VastNed shares at $17. Including VastNed O/I's direct investment result of 82 cents per share for the nine months to September, which it usually pays out as a dividend, the final price would be $17.86 per share. NSI has a market capitalization of around $871 million.

For the first nine 2010 months, NSI posted a direct investment result of $53 million, fractionally up on the same period in 2009. It paid a dividend of 88 cents for the first half and in the second quarter issued 9.99% of capital in the form of new shares.

Allan Saunderson is a managing editor of Property Investor Europe and a contributor to GlobeSt.com.