BROKERAGE GIANT: CB RICHARD ELLIS, INSIGNIA COMBO IN WORKS

CB Richard Ellis and Insignia Financial Group may be heading to the altar.

After weeks of rumors, Insignia confirmed yesterday it was in “combination” talks with CBRE that could result in the largest real estate company in the world.

The Insignia statement said no final agreement had been reached. It followed a published report out of London, which could not be confirmed, that a deal had already been struck for CBRE to buy Insignia for $400 million.

Any deal would likely take Insignia private and combine a management buyout with a public tender offer likely at the low end between $12 and $17 a share, industry watchers believe.

The resulting firm would reduce competition in a slowing economy, but could be hampered by over $1 billion in debt and clashing cultures before any reduction in personnel and overhead could occur.

Insignia has over 6,200 employees in 95 offices around the world, and owns the Richard Ellis name in Britain. Its U.S. units include Insignia/ESG, the powerhouse commercial brokerage and services company that is one of the three dominant players in the New York market; Insignia Residential Group, which manages luxury apartment buildings; and Insignia Douglas Elliman, the luxury residential brokerage.

CBRE, which already calls itself the world’s largest real estate services firm, employs 10,000 people in 250 offices in 47 countries. Despite its global reach, it has had a lower profile in New York – where a merger could set off a turf war between high-powered dealmakers.

Last summer, CEO Ray Wirta and president Brett White moved dramatically to bolster CBRE’s New York operation. They lured superstar Insignia/ESG vice-chairman Mary Ann Tighe to head up the metro area office, a defection that left ESG top honcho Stephen Siegel seething.

Armed with a generous war chest, Tighe promptly raided ESG and other firms for top talent. Brokers have buzzed all week about how Siegel and Tighe would fit in at a merged company.

“Money heals all wounds,” commented one broker from another company who declined to be identified.

The New York Stock Exchange halted trading in Insignia stock yesterday when it zoomed from $8.40 at the open to roughly $9.75 on the premature report of a done deal. The day’s volume of 492,000 shares was more than 10 times the average.

In July, 2001 CB Richard Ellis completed an $800 million management buyout to take its firm private with the help of San Francisco-based investor Richard Blum.

Insignia and CBRE have been reported in merger talks before. There is now an urgency to completing such as deal, however, particularly for Insignia’s entrepreneurial chairman Andrew Farkas, who would otherwise have to wait many more years to cash out.

The near-term outlook for the industry is dim as worldwide volume and the size of real estate transactions have slowed. New York and Washington, D.C., have been bright spots, but the Big Apple still faces rising vacancies and declining rents with no end in sight.

Since Insignia Financial went public in 1998, its stock price has also eroded. Farkas was berated by investors this fall for running a hedge fund within the company as well as for his high-profile life style that included a fractional interest in a jet and a large yacht.

Yesterday, Insignia had a market cap of $225.9 million.

Last fall, Farkas’ friend, billionaire investor Carl Icahn, helped pump up the stock when he bought 6.9 percent of the company.

A combo deal

A merger of Insignia Financial and CB Richard Ellis Inc., under discussion, would create the world’s largest commercial real estate firm. What they would bring to the table:

Company

Employees

Revenues*

Ranking

Investment assets*

Square footage of asset/property management

Exec team

Insignia

6,200 employees, 95 offices, 14 countries

$526.8 million

No. 1 in New York city deals

$31 million invested in 35 assets

280 million sq. ft. in U.S.*

Andrew Farkas, chairman and CEO; Frank Garrison, president

CB Richard Ellis

10,000 employees, 250 offices, 47 countries

$793.8 million

No. 1 in investment property sales in the U.S.

$10 billion investment portfolio in 2001

604.5 million sq. ft.

Raymond Wirta, CEO; Brett White, president

*Year end 2001