Public Storage Inc. on Tuesday agreed to purchase Shurgard Storage Centers Inc. for $3.2 billion, ending a seven-month process that evolved from a takeover bid to a negotiated merger.

The agreement, which sets the price for Shurgard at close to current market value, creates the largest self-storage company in the world, with a combined total market capitalization of $18 billion and over 2,100 facilities in 38 states and seven European nations.

Under terms of the deal, each share of Shurgard common stock would be exchanged for 0.82 shares of Public Storage, representing a value of $65.16 based on Public Storage's close on March 6. This is a 39 percent premium to Shurgard's closing price on July 29, 2005, the last day of trading prior to when Public Storage publicly announced its proposal to acquire the Seattle-based company in August.

The total transaction value is $5 billion, including Public Storage's assumption of approximately $1.8 billion of Shurgard debt. The Glendale-based real estate investment trust will issue about 38.4 million shares of common stock and $136 million of Shurgard preferred stock will be redeemed.

The transaction is expected to close by the end of the second quarter, the companies said in a statement. Upon closing, Shurgard's shareholders will own approximately 23 percent of the shares of the combined company.

Public Storage's unsolicited takeover offer for Shurgard Storage Centers Inc. was rejected in July. In August, Shurgard rebuffed its official offer, saying the deal wasn't in the best interest of its shareholders. But last October, Shurgard softened its stance, saying it was considering its "strategic alternatives"; in late November, it signed confidentiality agreements with Public Storage.

"After reviewing a number of strategic alternatives, it is clear that this transaction is the best option to create long-term value for our shareholders," said David K. Grant, president and chief executive of Shurgard, in a statement on Tuesday.

Public Storage will retain its headquarters in Glendale. Grant will remain with the company at least through the close of the transaction.

Shares of Public Storage fell 2.9 percent to settle at $77.17 on Tuesday.

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