Koll Co. Negotiating Land Buy From Union Pacific

NEWPORT BEACH — The Koll Co. is negotiating to buy thousands of acres in the Midwest and on the West Coast from Union Pacific Corp., the giant railroad company, in a deal that could total several hundred million dollars, analysts and real estate sources said Wednesday.

Neither company would confirm the talks. But Union Pacific said last week it had given Koll exclusive rights for eight days to look at the real estate and make an offer. That period expired Friday with no further word from either company.

But real estate executives and stock analysts who follow Union Pacific said negotiations continued into this week.

Analysts put the value of Union Pacific’s land at around $350 million, and the company has maintained it might be worth much more.

Union Pacific said in April it would sell 25,000 acres in urban areas such as Los Angeles, San Diego, Chicago, Las Vegas, Denver, Portland, Ore., and Seattle.

The company, based in Bethlehem, Pa., is considered by analysts to be well-run. But it’s an anemic performer on the stock market. (Its stock closed Wednesday at $73.375, down 12.5 cents on the New York Stock Exchange.) That’s because it is so diverse that investors find it difficult to figure out whether the company’s stock price is a good buy.

So, the analysts said, Union Pacific decided to sell some businesses for which it could get good prices but which were holding the stock price down. Real estate was such a business, analysts said, because it tends to be more valuable when held over the long term rather than as a quick generator of the big earnings prized so much by investors.

“Real estate doesn’t really fit into an earnings-based company,” said Anthony B. Hatch, an analyst for PaineWebber Inc. in New York.

Union Pacific is anxious to make a deal before the end of the year, Hatch said. The company said last week it expected to negotiate a month or more even if Koll made an offer quickly.

Archibald Jacobson, president of Union Pacific Realty Co.--the railroad’s real estate subsidiary--said in a letter to employees last week that there were “other interested bidders” if the Koll deal fell through.

Union Pacific Realty earned $31.2 million last year on revenue of $95 million. But this year, with some of its real estate markets weak, Union Pacific’s nine-month earnings fell to $9 million. That is compared to $19 million last year.

Koll is one of the largest developers and property owners on the West Coast with a portfolio of properties it says is worth $4 billion. Some of Union Pacific’s landholdings dovetail nicely with Koll offices in Seattle, Portland and San Diego, while other holdings in Denver and Chicago might allow Koll to move its development business eastward. Koll recently opened a Dallas office in a move to expand off the West Coast.

In Orange County, where Koll got its start, the company built many of the glass office towers around John Wayne Airport and is credited with turning that area into a flourishing business center.

Until a few years ago, privately held Koll didn’t buy buildings it hadn’t developed. In the last few years, however, Koll has bought the property division of Weyerhaeuser Mortgage Co. and the $300 million worth of property in the portfolio of Wells Fargo Mortgage & Equity Trust, the largest purchase in the company’s history.

Union Pacific, meanwhile, bought much of its land years ago as part of its railroad operations. In the mid-1970s Union Pacific spun off its real estate operations as a separate subsidiary, which began developing industrial buildings such as factories and warehouses, according to a spokesman.

Lately the company has begun to develop more elaborate and expensive office buildings, most of them low-rise. The assets for sale include about 50 buildings, the spokesman said.

Much of the company’s land is in or near major urban areas, said Robert Decker, an analyst at Duff & Phelps Inc. in Chicago. A major development corridor west of Chicago, for instance, includes a lot of Union Pacific land, he said. And the company also owns a train terminal and 235 acres in downtown Las Vegas that could be extremely valuable.

“By selling this stuff they’re basically trying to focus the company better and let investors perceive it more easily,” Decker said. “They’re selling businesses that have good assets and will bring them a good price, but that don’t show up in the stock price.”