01—Abstract
Summary
Summary of the 8-K/A filed October 7, 2003. Cited figures are marked; the original filing is the authoritative source.
CBRE Holding, Inc. filed this amended Form 8-K/A to add the financial information required by Items 7(a) and 7(b) for its July 23, 2003 acquisition of Insignia Financial Group, Inc. The filing does not announce a new transaction.
It supplies Insignia's unaudited interim financials for the six months ended June 30, 2003, the audited 2002 and 2001 financials from Insignia's 2002 10-K, and CBRE Holding's unaudited pro forma combined financial statements. Insignia shareholders received $11.156a per share in cash. The pro forma purchase price is about $333.4 million, and the preliminary excess purchase price over estimated net assets acquired is about $177.2 million, which is recorded as goodwill.
The pro forma figures show the scale of the combination. Pro forma 2002 revenue is about $1.74 billionb, compared with CBRE Holding's historical $1.17 billion, and pro forma 2002 income from continuing operations is about $16.5 million. For the six months ended June 30, 2003, pro forma results show a loss from continuing operations of about $4.7 million.
The acquisition is financed with $200 millionc of 9¾% senior notes, a $75 million additional Tranche B term loan, and $120 million of equity from CBRE Holding's stockholders at $16.00 per share. Management expects about $213.3 million of transaction, severance, facilities closure, and integration costs, and the pro forma figures exclude any expected synergies.
For investors, the key points are the leverage added to fund the deal, the large non-recurring integration spending, and the preliminary nature of the purchase accounting. The pro forma statements are explicitly subject to revision once valuation studies are finalized, so the goodwill, intangible asset, and deferred tax figures could change materially.
02—Key points
Key Highlights
- Insignia Financial Group was acquired on July 23, 2003 for $11.156 per common share in cash, with a total pro forma purchase price of about $333.4 million.
- Pro forma 2002 revenue of about $1.74 billion is roughly 49% above CBRE Holding's historical $1.17 billion, reflecting the addition of Insignia's roughly $721 million in 2002 continuing revenue.
- Pro forma combined goodwill is about $754 million and other intangible assets about $192 million, after an excess purchase price of about $177 million over estimated net assets acquired.
- Financing includes $200 million of 9¾% senior notes due 2010, a $75 million additional Tranche B term loan, and $120 million of new equity at $16.00 per share from CBRE Holding's stockholders.
- Management expects about $213.3 million of acquisition-related expenditures, including about $95.7 million to be recorded as goodwill and about $76.1 million to be expensed as incurred.
- Insignia's real estate investment assets were sold to Island Fund I LLC for $36.9 million in cash immediately before the merger, with a pre-tax loss of about $12.8 million recognized.
- Insignia reported a 2003 six-month net loss of $6.3 million, including a $12.4 million operating loss, and pro forma results exclude any expected synergies.
03—Questions
Frequently Asked Questions
Why was this 8-K/A filed, and does it describe a new transaction?
No. The original 8-K filed August 7, 2003 reported the Insignia acquisition. This amendment adds the financial statements and pro forma information that Items 7(a) and 7(b) of Form 8-K require. It supplies Insignia's interim and audited historical financials and CBRE Holding's unaudited pro forma combined financial statements.
How much did the acquisition cost, and how was it funded?
The pro forma total purchase price is about $333.4 million. This includes about $266.9 million for common shares at $11.156, about $38.2 million for Insignia's Series A and B preferred shares, about $7.9 million to settle options and warrants, and about $20.3 million of transaction costs net of financing costs. Funding came from $200 million of 9¾% senior notes, a $75 million additional Tranche B term loan, and $120 million of equity from stockholders at $16.00 per share, with cash on hand used for the balance.
How much of the purchase price is goodwill, and why does that matter for investors?
Pro forma goodwill is about $754 million, which includes Insignia's historical goodwill adjusted for an excess purchase price of about $177 million over estimated net assets acquired. Goodwill is not amortized but is tested for impairment, so a future impairment charge would reduce earnings. The purchase price allocation is preliminary and could change materially after valuation studies are complete.
What are the expected integration and restructuring costs?
Management expects about $213.3 million of expenditures tied to the transaction. Of this, about $61.7 million is expected to be paid by closing and about $151.5 million over time. About $76.1 million is to be expensed as incurred, including severance, facilities closure, and retention costs, and about $95.7 million is to be recorded as goodwill. These charges will reduce reported earnings in the periods they are incurred, though the pro forma statements do not reflect them as recurring operating costs.
Are the pro forma results indicative of CBRE's future performance?
Not necessarily. The filing states that the pro forma information is for illustrative purposes only and does not project future results. It excludes expected cost synergies and is based on preliminary estimates. Pro forma 2002 income from continuing operations is about $16.5 million, and pro forma results for the first half of 2003 show a loss from continuing operations of about $4.7 million, reflecting interest costs on the new debt and the acquisition-related charges.
04—Continue