Regus, Frontline end merger talks

Real Estate Weekly, July 4, 2001 by Natalie Keith

Regus Business Centres has decided to end merger talks with Frontline Capital Group Inc., the company spun off by Long Island's Reckson Associates Realty Corp., said chief executive officer-Americas James Howland.

But the London-based company is still pursuing aggressive expansion plans for New York City. Regus recently opened its second location in the city at the World Trade Center. Regus is the second largest provider of business centers, which to be known as executive suites, Howland said.

"At this point in time, we broke off the talks and, for the foreseeable future, we're going our separate ways," he said.

Regus had been discussing plans to merge with Frontline Capital Group and its HQ Global Workplaces Inc. unit. With 460 locations in 19 countries, HQ is the largest business center provider in the country and Regus' biggest competitor.

But after news of the merger talks -- which were leaked to the London Sunday Telegraph -- became public, the company's stock dropped 15 percent and the companies decided against merging. The merger made strategic sense for the company but, with the drop in the stock price, it was not in the best interests of company shareholders, Howland said.

"For our customers, it would be a nice fit," he said.

Since Regus was started 11 years ago, it has grown an average of 90 percent each year. Until recently, however, the company grew mainly by opening its own locations. The merger with Frontline is reflective of a recent company decision to grow through mergers and acquisitions.

Regus recently acquired Stratis Business Centers, which has 12 franchised operations on the East Coast and plans for another 15 new centers by the end of the year. Acquiring a franchised operation allows Regus to tap into alternate sources of capital and retain management in localities where Regus doesn't operate, he said.

"Up until now, we've grown organically but we recently decided to include acquisitions as a way to grow," Howland said. "In the future, we anticipate that franchised operations will account for half of our centers."

Regus' 50,000 SF operation at the World Trade Center officially opened its doors June 13 but has been accepting leases since May. It is now 45 percent leased.

"The World Trade Center management leases in half-floor minimums of 25,000 SF. The Regus opening affords companies needing less square footage access to this prominent location below what it would cost to operate in a much less desirable building," said Bob Gaudreau, Regus's executive vice president sales and corporate development.