Ellis takes itself private.

Deal includes merger with BLUM

CB Richard Ellis has agreed to enter into a $750 million merger agreement that will put the real estate services firm back into private hands, company officials said.

Under the agreement, BLUM CB Corp. will acquire the company for $16 a share. The transaction is valued at $750 million, including the assumption and refinancing of debt.

"I am very excited about this transaction," said Ray Wirta, GB Richard Ellis chief executive officer. "The new capital resources, broad employee equity ownership and long-term support of a first-class private equity investor position the company well for the future."

CB Richard Ellis executive managing director Steven Swerdlow mentioned the deal during a panel discussion at a Commercial Property News conference last week. Panel members were discussing the advantages and disadvantages of operating a public versus a private company.

Swerdlow refrained from participating in the discussion, explaining that, under federal Securities and Exchange Commission rules, he was prevented from talking because of the BLUM CB Corp. deal.

"We're in the process of obtaining stockholder approval for the deal," he said.

When asked about the deal after the panel discussion ended, Swerdlow said he could not comment further on it.

BLUM CB Corp. made a proposal in November to take the company private in a transaction in which the public stockholders would have received $15.50 per share. The company's board of directors appointed a special committee, consisting of directors Stanton Anderson and Paul Leach, to consider BLUM CB Corp.'s proposals and other alternatives. After considering the company's alternatives and negotiating an additional 50 cents per share, the committee recommended the transaction, according to a company statement.

Under the agreement, company employees will have the option to roll over their existing shares in the company's deferred compensation plan and a portion of the company shares held in their 401(k) accounts. Employees will be given the opportunity to make a direct equity investment in the surviving company, the company said.

To finance the transaction, BLUM CB Corp. has received commitment letters from Credit Suisse First Boston and DLJ Investment Funding, Inc. for $400 million of senior debt and $75 million of mezzanine debt. CSFB has also committed to provide a $100 million working capital facility. In addition, affiliates of BLUM Capital Partners have committed up to $150 million in equity capital for the transaction. An additional $85 million of equity for the transaction will be provided by the rollover of company equity, most of which is owned by the stockholders of BLUM CB Corp. other than BLUM Capital Partners, the company said.

"We appreciate the confidence of the board in accepting our offer as the best alternative for the company, its shareholders, and its employees," said Richard Blum, chairman of BLUM Capital Partners. "CB Richard Ellis has built a pre-eminent global franchise in real estate services. We are pleased to partner with management to guide the company in its next stage of growth."

The acquisition is expected to be completed late in the second quarter. However, it remains subject to certain conditions including the receipt of BLUM CB Corp. debt financing, the approval of the merger by the holders of two-thirds of the outstanding shares of the company not owned by the buying group, the expiration of applicable antitrust laws and a successful tender offer for at least 51 percent of the company's outstanding 8-7/8 percent senior subordinated. The company's will pay a termination fee of $7.5 million and reimburse up to $3 million of the buying group's expenses if the company wishes to accept a superior acquisition proposal. No workforce reductions are contemplated in connection with the acquisition, the company said.

During the panel discussion Julien Studley, chairman and chief executive officer of Julien J. Studley, said his company considered an offer to go public three years ago but declined. Part of the reason the company elected not to go public was because of the 20 percent earnings demanded by stockholders. Accomplishing this virtually requires a company to use mergers and acquisitions to grow the company, he said.

"The public instrument is questionable. It's clear for us that it doesn't work," Studley said.

Ronald Uretta, president and chief operating officer of Insignia Financial Group, said the company has been public since 1993. Among benefits is the ability to access Wall Street for debt and equity, he said.

"I think for us it has worked. We wouldn't be where we're at if we weren't public," Uretta said.

John Orrico, president of Grubb & Ellis Company of Northbrook, Ill., said the company's decision to go public "helped us to expand at a time when we needed it. He added, however, that Wall Street has not rewarded the company for its efforts.

"In the long-term, you question whether it's the right thing to do for your assets," Orrico said.

The panel agreed that Wall Street rewards companies that are consistent in showing positive quarterly earnings statement. Most real estate companies, however, gauge performance based on yearly earnings. "Wall Street needs to understand us better," Orrico said.