01—Abstract
Summary
Summary of the 8-K filed July 9, 2003. Cited figures are marked; the original filing is the authoritative source.
On July 8, 2003, CBRE Holding, Inc. and Insignia Financial Group (NYSE: IFS) announced an agreement in principle to settle purported class action litigation brought by Insignia stockholders in Delaware Chancery Court.
The suits challenged the proposed merger of Insignia into CB Richard Ellis, an affiliate of CBRE Holding, and Insignia's pre-merger sale of its real estate investment assets to Island Fund I LLC, an entity affiliated with Insignia CEO Andrew L. Farkas. Both companies deny the allegations but settled to avoid costly litigation and eliminate the risk of merger delay.
Insignia will pay plaintiffs' legal fees, with the amount still to be set by the court. The settlement is subject to court approval and does not change the merger consideration. The merger terms are a key point for investors.
Insignia stockholders are slated to receive $11.00 per share, rising to $11.156a per share if the Island Fund sale closes before the merger and certain conditions are met. The Island Fund sale price is below the $64.5 million book value of the assets as of March 31, 2003, and sits near the low end of Bear Stearns' $50.0 to $111.2 million valuation range. Management justified the discount by citing the lack of other bidders for the entire portfolio and the need for cash to close before the merger in order to trigger the price increase.
Insignia's special stockholder meeting is scheduled for July 22, 2003, with the merger expected to close on July 23, 2003. For CBRE Holding, the filing clarifies that it chose not to invest in Farkas-proposed joint ventures, which would have required roughly $27.4 millionb of retained investment, and that it preferred a clean exit from the real estate assets to stay focused on core commercial real estate services. CBRE Holding reported 2002 net revenues of $1.17 billion and approximately 9,500 employees.
02—Key points
Key Highlights
- Settlement in principle: CBRE Holding and Insignia agreed in principle to settle consolidated class action litigation brought by Insignia stockholders, subject to Delaware Court of Chancery approval; both sides deny wrongdoing.
- Merger consideration: Insignia shareholders expect $11.00 per share, increasing to $11.156 per share if the Island Fund asset sale closes before the merger and merger conditions are satisfied; the settlement does not alter this consideration.
- Related-party asset sale: Insignia's real estate investment assets are being sold to Island Fund, an entity affiliated with CEO Andrew L. Farkas and other Insignia executives, for less than the $64.5 million book value as of March 31, 2003, near the low end of Bear Stearns' $50.0 to $111.2 million valuation range.
- Plaintiffs' fees: Insignia will pay plaintiffs' counsel legal fees and expenses in an amount to be approved by the court; the amount has not yet been agreed, and this payment does not reduce the merger consideration.
- Key timeline: Insignia's special stockholder meeting to vote on the merger is set for July 22, 2003, with closing expected on July 23, 2003; a memorandum of understanding was expected within days.
- Farkas employment agreement: The CEO's employment agreement, amended in December 2002, extends his employment through December 31, 2005; plaintiffs had challenged the disclosure of this extension.
- CBRE strategic stance: CBRE Holding declined to invest approximately $27.4 million in Farkas-proposed joint ventures, citing a focus on core commercial real estate services and merger financing needs.
03—Questions
Frequently Asked Questions
What does the settlement mean for the merger and Insignia shareholders?
The settlement does not change the merger consideration or the July 22, 2003 stockholder meeting timing. Insignia shareholders will receive $11.00 per share, or $11.156 per share if the Island Fund sale closes before the merger and conditions are met. The settlement removes litigation risk that could have delayed the merger, and the company will provide additional disclosure to shareholders.
Why was Insignia's real estate portfolio sold below book value?
Management said the Island Fund offer was the only bid for the entire portfolio, that partial sales were hard to execute, and that sales must close before the merger to increase the per-share price. Island Fund's principals were already familiar with the assets, which management believed improved the odds of a timely close. The price is below the $64.5 million book value and near the low end of Bear Stearns' valuation range.
Are there conflicts of interest in the Island Fund transaction?
Yes. Island Fund is affiliated with Andrew L. Farkas, Insignia's CEO, and other executive officers, and the plaintiffs argued that the special committee did not obtain an independent appraisal and did not adequately consider Farkas' employment agreement. Both companies deny these allegations, and the settlement includes additional disclosure to stockholders.
What are the financial costs to Insignia from the settlement?
Insignia agreed to pay plaintiffs' legal fees and expenses, with the amount to be set by the court. The filing does not disclose the amount, but the payment is stated not to affect the merger consideration.
Why did CBRE Holding not invest in the Farkas joint ventures?
CBRE Holding said the joint ventures would have required about $27.4 million of retained investment, which was inconsistent with its commercial real estate services focus and merger financing needs. It also cited the lack of committed third-party financing (about $35.55 million was to be raised), limited economic attractiveness due to promotional interests and fees, and insufficient time to negotiate definitive agreements before the February 12, 2003 deadline.
04—Continue