Exhibit 2
BLUM CB Corp.
c/o BLUM Capital Partners, L.P.
909 Montgomery Street, Suite 400
San Francisco, California 94133
(415) 434-1111
November 10, 2000
Board of Directors
CB Richard Ellis Services, Inc.
200 North Sepulveda Boulevard
El Segundo, California 90245-4380
Attention: James J. Didion
Chairman of the Board of Directors
Dear Sirs:
BLUM CB Corp., a Delaware corporation ("Newco"), is
very pleased to present its all-cash proposal ("Proposal")
to purchase all of the common stock of CB Richard Ellis
Services, Inc. (the "Company") not owned by the Offering
Group identified below at a price of $15.50 per share (the
"Transaction"). The purchase price we are offering your
stockholders represents a premium of 29.4% to the average
closing price of the Company's common stock on the New York
Stock Exchange for the three-month period ended on November
9, 2000. Newco has been formed by RCBA Strategic Partners,
L.P. ("BLUM"), an affiliate of BLUM Capital Partners, L.P.,
for the purpose of effecting the Proposal. The Offering
Group includes (i) BLUM and other entities affiliated with
BLUM, (ii) Freeman Spogli & Co. Incorporated through its
affiliates FS Equity Partners III, L.P., a Delaware limited
partnership, and FS Equity Partners International, L.P., a
Delaware limited partnership (collectively, "Freeman
Spogli"), and (iii) certain directors and senior management
of the Company, including Mr. Ray Wirta. The Offering Group
presently owns or controls approximately 38% of the
outstanding common stock of the Company.
We believe that the Proposal constitutes an excellent
opportunity for the stockholders of the Company to realize
full value for their shares to an extent not available to
them in the marketplace, and that they will find this value
compelling. In addition, we believe the financing needed to
complete the Transaction can be obtained in a timely manner
and the conditions to the Transaction will be limited. As a
result, we believe we have the ability to complete the
Transaction quickly and provide near-term liquidity for your
stockholders.
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CB Richard Ellis Services, Inc.
November 10, 2000
The terms of the Proposal are summarized below:
Purchase Price
Our cash purchase price of $15.50 per share for the
Company's common stock places a total value on the Company's
common stock of approximately $340 million (including for
each option to acquire the Company's common stock the
difference between the purchase price and the exercise
price). The Proposal represents a substantial premium to
the Company's current stock price and prior averages. The
offer represents a 24.0% premium to the Company's closing
stock price of $12.50 on November 9, 2000; a 29.4% premium
to the Company's three-month average of $11.98 per share for
the period ending November 9, 2000; and a 37.1% premium to
the Company's six-month average of $11.31 per share for the
period ending November 9, 2000. In addition, the Company's
"public float" is extraordinarily limited with an average of
17,114 shares traded each market day during the 3-month
period ending November 9, 2000. In other words, we believe
the Proposal gives the Company's public stockholders an
opportunity to obtain liquidity at a full and fair
valuation.
Equity Financing
It is contemplated that the 8,052,113 outstanding
shares of the Company common stock currently owned by the
Offering Group effectively will be converted into shares of
common stock of the Company after the closing of the
Transaction. In addition, BLUM will provide approximately
an additional $47.6 million of equity to the Company, as
well as up to approximately an additional $52.6 million to
the extent that the employees of the Company do not
subscribe for all of the common stock that we anticipate
making available to them for purchase at the closing of the
Transaction.
BLUM Capital Partners, L.P., which together with its
affiliates currently beneficially owns approximately 16.1%
of the Company's outstanding common stock, is a leading
private equity and strategic block investment firm with
approximately $3.8 billion of equity capital under
management, including through affiliates. BLUM Capital was
founded 25 years ago and has invested in a wide variety of
businesses in partnership with management teams to create
long-term value.
The proposal contained in this letter has received all
necessary internal approvals from BLUM and no other internal
approvals are required. A description of the terms relating
to the Equity Financing is contained within the letter
agreement (and related term sheet) attached hereto as
Exhibit 1.
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CB Richard Ellis Services, Inc.
November 10, 2000
Debt Financing
We have had discussions with Credit Suisse First Boston
("CSFB") regarding debt financing totaling $600 million
dollars to support the Transaction. This debt would be
comprised of funded senior term loans of up to $275 million
and $225 million of subordinated indebtedness. In addition,
a revolving credit facility of $100 million would be
provided for ongoing working capital purposes post-closing.
The contemplated debt structure is structured to allow for
the consummation of the Proposal and provide ample capital
for the Company' future growth and working capital needs.
As is customary for transactions of this nature,
consummation of the Transaction is subject to receipt of the
required debt financing. We intend to execute commitment
letters for all of the required debt financing at the time a
definitive merger agreement is executed. We anticipate that
definitive documentation for the debt financing would be
finalized in the period prior to the vote of the Company's
stockholders with respect to the Transaction.
CSFB is prepared to devote the necessary resources to
close the transaction expeditiously. Should you wish to
discuss any aspect of the proposed financing with CSFB, we
would be happy to arrange an opportunity for you to meet
with appropriate representatives.
Structure
We currently contemplate that the Transaction will be
consummated in two steps. In the first step, each of the
members of the Offering Group will contribute all of the
shares of common stock of the Company beneficially owned by
such member to Newco in exchange for newly-issued shares of
Newco. Immediately following completion of the first step
of the Transaction, Newco will be merged into the Company.
Pursuant to the merger, all shares of the Company's common
stock (other than the shares held by Newco) will be
converted into the right to receive the Purchase Price, all
shares of common stock of the Company held by Newco will be
cancelled and all shares of common stock of Newco will be
converted into shares of the common stock of the Company.
At the conclusion of the Transaction, assuming the Company's
employees agree to purchase the full amount of the common
stock that we make available to them, the outstanding equity
ownership of the Company would approximately be as follows:
BLUM and affiliates, 45%; management and employees of the
Company, 25%; Freeman Spogli, 23% and other investors, 7%.
We and our representatives are prepared to discuss our
proposed acquisition structure with you in detail at your
request.
Treatment of Existing Indebtedness
At the closing of the Transaction, the Company's
existing bank credit facility would be refinanced with the
proceeds of the debt financing. In addition, prior to the
closing we would
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CB Richard Ellis Services, Inc.
November 10, 2000
tender for all of the outstanding 8-7/8% Senior Subordinated
Notes of the Company. We would also seek consents from the
holders of the 8-7/8% Senior Subordinated Notes to the
deletion of substantially all of the negative covenants
contained within the indenture relating to such notes.
Employees
We are keenly aware of the importance of the Company's
employees, in particular, sales professionals, and we
believe the Transaction will benefit the employees of the
Company. Our capital structure is designed to enable the
Company to grow and thereby enhance the opportunities
available to its employees. In addition, the employees will
be given the opportunity to own a significant amount of
equity in the Company going forward. At the closing of the
Transaction, we anticipate taking the following actions with
respect to certain of the compensation and benefit programs
available to the Company's employees:
- Deferred Compensation Plan. We will allow each
participant in the Deferred Compensation Plan who has
invested his or her own funds in the stock fund alternatives
under the DCP to (i) convert the value of that investment
(based upon the purchase price paid to the Company's
stockholders in the Transaction) into any of the insurance
mutual fund alternatives now provided under the Deferred
Compensation Plan, (ii) receive a cash payment equal to the
value of that investment (based upon the purchase price paid
to the Company's stockholders in the Transaction), which
payment may at the option of such participant be used to
purchase shares of the common stock of the Company that the
Offering Group intends to make available after the closing
of the Transaction (which shares are included in the
approximate aggregate 12% made available to employees as
discussed below), or (iii) continue that investment in
Company stock after the closing of the Transaction as part
of the approximate aggregate 12% to be made available to
employees. After the closing of the Transaction, future
deferrals under the DCP will only be invested in the
insurance mutual fund alternatives under the DCP.
- Capital Appreciation Plan (401(k)). For legal reasons,
it is impractical for the Company's 401(k) plan to hold
stock of a private company. However, we will purchase all
of the stock held in that plan at the price paid to the
Company's stockholders in the Transaction and permit
participants to invest the proceeds in any of the other
funds available under the 401(k) plan.
- Stock Options and Equity Incentive Plan Awards. Each
outstanding employee option and equity incentive plan
award will be purchased for a cash amount equal to the
difference between the price paid to the Company's
stockholders in the Transaction and such option's exercise
price or such award's purchase price, which amount may be
used to purchase part of the approximate aggregate 12% to
be made available to employees.
- Stock Ownership in the New Private Company. We will
make available up to approximately 12% of the outstanding
common stock of the Company for purchase by employees at a
purchase price equal to the price paid to the Company's
stockholders in the Transaction.
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CB Richard Ellis Services, Inc.
November 10, 2000
We also intend to maintain the Company's training and
performance recognition programs for its sales professionals
going forward, including CBRE University, the annual
recognition event and the Las Vegas World Conference.
In addition, we intend to enter into agreements with
certain members of senior management of the Company allowing
them to purchase, and to receive options to purchase, common
stock of the Company. We also anticipate entering into
employment agreements with certain members of senior
management of the Company.
Legal Documentation/Conditions
The Proposal is subject to the following conditions:
(i) approval by the board of directors of the Company and
stockholders pursuant to the requirements of the Delaware
General Corporate Law and the rules of the New York Stock
Exchange, (ii) receipt of any material governmental and
third party approvals (including expiration of all
applicable waiting periods under Hart-Scott-Rodino),
(iii) receipt of consents from the holders of a majority of
the outstanding 8-7/8% Senior Subordinated Notes as
described above, (iv) receipt of the necessary debt
financing as described above and (v) the negotiation and
execution of definitive agreements providing for the merger
and the transactions outlined in Exhibit 1 to this letter,
including a mutually satisfactory definitive merger
agreement which would contain customary covenants,
representations, warranties, conditions and other
provisions. While we have devoted a great deal of time and
effort to studying the Company and have completed
substantially all of our business and financial due
diligence, our Proposal is also subject to completion of
confirmatory legal due diligence to be conducted by BLUM and
its legal advisors. Given the familiarity of BLUM with the
Company, this diligence would be completed expeditiously and
should not delay consummation of a definitive merger
agreement.
Our Proposal is based on our understanding that the
Company's capitalization consists of: (i) 21,213,928 common
shares issued and outstanding, (ii) 1,345,587 "phantom
shares" outstanding under the Company's Deferred
Compensation Plan, (iii) 902,918 options to purchase common
stock outstanding that have exercise prices at or below
$15.50 per share with an unweighted average exercise price
of $5.81 and (iv) 2,439,299 additional options and warrants
outstanding with exercise prices in excess of $15.50 per
share.
We are prepared to negotiate a definitive merger
agreement immediately and would be delighted to provide a
draft of such agreement at your request. If the Company
determines to promptly accept our Proposal, the Transaction
could be completed as early as February 2001.
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* * *
We believe the Board of Directors should feel confident
that this Proposal represents a fair and attractive price
for the Company. The Proposal provides liquidity at a
significant premium for the current stockholders. We have
no intention of attempting to acquire the Company other than
in a transaction approved by the Board of Directors. Unless
earlier accepted, the Proposal will terminate at 5:00 PM
(PST) on December 1, 2000.
We are prepared to discuss this offer with you
immediately. In responding to us or in seeking further
information concerning our Proposal, or for any other
matter, please call Claus Moller, Managing Partner, BLUM
Capital Partners, L.P. at 415-288-7262 or 212-521-4192.
Sincerely yours,
BLUM CB CORP.
By: /s/ Claus J. Moller
--------------------------
Name: Claus J. Moller
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