Insignia, CB discuss merger

Real Estate Weekly, Feb 19, 2003 by Steve Viuker

It appears a potential bidding war may be breaking out for control of Insignia Financial Group, the New York-based provider of residential and commercial real estate services.

Last week, Insignia disclosed that it had entered merger talks with CBRE Holdings, the parent company of rival CB Richard Ellis, regarding a proposed combination of the two firms. But Insignia appeared decidedly lukewarm over the prospect, cautioning in a statement that considerable obstacles to a deal remained and saying there could be "no assurance that the current discussions will result in a transaction" until the negotiations produced "definitive documentation that resolves all critical aspects of a transaction, including risk allocation and financing."

CBRE and Insignia have discussed merging before, but talks have broken down. In Insignia's statement, the firm said the following, "Insignia Financial Group, Inc. acknowledges that the company is in discussions with CB Richard Ellis, Inc. with respect to a proposed combination of the two organizations. There is no assurance that the current discussions will result in a transaction. If and when the parties enter into definitive documentation that resolves all critical aspects of a transaction, including risk allocation and financing, the company will make a public announcement."

One industry executive stated, "I would really cement CBRE as clearly dominant in the industry."

This week, Insignia issued a new filing disclosing that another suitor had stepped forward and asked to hold confidential talks about a merger. According to the filing, Wall Street investor and former corporate raider Carl Icahn has increased his stake in Insignia from the 6.9% he held in early December to about 7.55% this month. Icahn has also signed a confidentiality agreement with the company to obtain "evaluation materials" and enter merger discussions.

Reuters reported that Icahn is now Insignia's third-largest investor, behind Capital Group International, which holds a 10.3% stake, and Dimensional Fund Advisors Inc., which holds an 8.9% stake.

Observers remain divided over whether Icahn is interested in gaining control over Insignia or simply in keeping the pressure on CB Richard Ellis to maximize its offer. All three firms declined to comment beyond their public filings.

Should Insignia accept an offer from privately held CBRE Holdings, it would result in the combination of the first and seventh largest brokerage firms based on amount of available SF under representation. CBRE, which reportedly has pursued several acquisition targets in the past year, including an unsuccessful bid for Grubb & Ellis last spring, has engaged in discussions with Insignia off and on for months.

A possible merger between the two firms offers several interesting possibilities, including the reunification of the Richard Ellis name under, one company. CB Richard Ellis was created in 1998 after CB Commercial acquired REI Ltd, the holding company for all Richard Ellis operations outside of the United Kingdom. In a confusing twist, the Richard Ellis operations in the U.K. were acquired by Insignia Financial.

In New York, a merger would also reunite super broker Mary Ann Tighe with her former colleagues at Insignia/ESG CB Richard Ellis made headlines last year after luring Tighe away from Insignia to head its New York Tri-State region.

CB Richard Ellis said it has just under 10,000 employees and maintains 250 offices in 47 countries. After a brief stint as a publicly traded entity, the firm was taken private in July 2001 in an $800 million leveraged-buyout led by Blum Capital Partners.

Insignia Financial said it has about 6,500 employees in 100 offices worldwide. In addition to its U.K.-based Insignia Richard Ellis, the firm owns Paris-based Insignia Bourdais with operations throughout France, and Insignia Brooke, Insignia's Asian operations, launched with the acquisition of Brooke International in December 2000.

Insignia also owns Insignia Douglas Elliman - the largest residential brokerage firm in New York City and Insignia Residential Group, a manager of cooperative and condominium apartments in the New York metropolitan area.

Insignia Financial shares soared more than 16% to $9.72 per share Friday after news of the offer was made public.