CB Richard Ellis Group Inc., the world’s largest commercial real estate services company, said today it agreed to buy rival Trammell Crow Co. for about $1.79 billion.
The deal would create a company with about $4.4 billion in annual revenue, more than 10 percent of the commercial real estate market, and let CB Richard Ellis tap Trammell Crow’s list of blue chip corporate clients.
CB Richard Ellis said the acquisition would increase its earnings per share in the first year by more than $65 million, or a low-teens percentage, partly due to selling Trammell Crow’s stake in a British real estate firm.
The purchase price of $49.51 per share in cash represents a 27 percent premium over Trammell’s closing price Monday.
Shares of Dallas-based Trammell Crow jumped $9.60 or 24.5 percent, to $48.70 in midday trading on the New York Stock Exchange while shares of CB Richard Ellis rose $1.54, or 5.5 percent, to $29.76.
Brett White, chief executive of CB Richard Ellis, said his company would control about 10.5 percent of the market for commercial real estate services. He said any additional gains would be difficult in the highly fragmented industry, in which his company competes against thousands of local firms.
White said the agreement doesn’t block another bidder from trying to buy Trammel Crow, although he said the deal includes a break-up fee. He declined to disclose the fee amount.
The deal is subject to approval by Trammell Crow shareholders.
The companies expect the sale to close by year end.
The companies said debt, transaction and integration costs would add $400 million to the deal, pushing the total cost to about $2.2 billion.
CB Richard Ellis said it plans to issue $2.2 billion of term loans to finance the transaction, and will also amend or refinance its existing $600 million revolving credit facility.
In addition, it plans to sell Trammell Crow’s 20 percent stake in British real estate services provider Savills PLC.
With nearly 50 offices in the United States, Trammell Crow employs about 6,200 workers and posted 2005 earnings of $59.4 million on $896 million in sales.
CB Richard, based in El Segundo, Calif., employs about 14,500 workers and posted 2005 net income of $217.3 million on sales of $2.91 billion. Chairman Richard Blum owns 14 percent of the firm through his Blum Capital Partners.
The deal had been rumored for more than a year, ever since a trade publication reported that executives of the companies were talking. It would be CB Richard Ellis’ biggest deal, surpassing the $415 million purchase of Insignia/ESG in 2003.
Once the transaction is complete, the combined company will have 21,000 employees and provide services to more than 85 percent of the Fortune 100. CB Richard Ellis said its contract revenue from outsourcing will more than double to 18 percent of total revenue, from 8 percent previously.
White said Trammell Crow’s development and investment business will be run as an independent unit under the Trammell Crow brand name. Robert E. Sulentic, chairman and CEO of Trammell Crow, will join CB Richard Ellis as group president with responsibility for the development and investment business.
