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NEW YORK CITY-The rampant speculation surrounding the proposed acquisition of Grubb & Ellis by CB Richard Ellis has turned what might have been a manageable meeting of the minds into a negotiators’ nightmare. And while sources close to the deal say the two firms continue to haggle over price, a seemingly uncorkable gush of rumor and misinformation out of the CBRE camp has dealmakers seeing red instead of green.

Despite aggressive repositioning efforts by Grubb & Ellis CEO Barry M. Barovick, the firm was expected to accept a purchase offer from CB Richard Ellis by yesterday. But while G&E has remained silent throughout the talks, industry insiders say the protracted negotiations appear to have taken CBRE by surprise. According to one industry source, “An internal memo went out to all CBRE employees last Thursday announcing the acquisition.” Apparently, the memo fueled enough company-wide exuberance to send brokers straight to their cell phones.

The fallout has been brutal for many G&E brokers, who have been faced with a stream of reports stating that privately held CBRE plans to retain top G&E brokers and relegate the rest of the firm to the scrapheap. Parties involved in the deal have called the situation “ugly,” and more than one insider tells GlobeSt.com that the non-stop gossip has further hindered an already tenuous negotiation process.

The sale would mark the final curtain call on a two-year melodrama that saw G&E nearly sold on at least two occasions following the May 2000 resignation of CEO Neil Young. Deals with GE Capital Corp. and Insignia/ESG reportedly crashed and burned before former Ernst & Young partner Barovick joined the firm in April 2001.

Ostensibly charged with transforming Grubb & Ellis core business from traditional brokerage to corporate consultancy, observers say Barovick worked quickly and effectively, yet speculation persists that the unspoken goal behind his recruitment was to reposition the firm for a sale. Whatever his initial mandate, the confluence of economic events that resulted in G&E’s fiscal Q3 net loss of $6.6 million certainly tipped the scales in favor of a disposition, this time with CBRE as the buyer.

Yet industry experts say they are flummoxed when asked to explain CBRE’s setting its cap for G&E. According to William C. Marks, senior research analyst with San Francisco-based merchant banking organization Jolson Merchant Partners Group LLC, the proposed acquisition raises more questions than it answers. “I don’t think it makes sense but I’m sure we’ll hear some good reasons,” he tells GlobeSt.com. “Grubb & Ellis recently hired what seems to be a strong management team.”

Moreover, “when two national companies merge and have competing offices, you will likely lose a lot of brokers,” Marks notes. “Grubb & Ellis could actually have revenue losses instead of revenue synergies.” The analyst also questions CBRE’s ability to finance a G&E buyout. “CBRE will have to come up with extra equity to pay for the deal and I think it may be a challenge finding an interested equity partner.”

Other industry watchers echo Marks’ questions regarding the wisdom of CBRE going into debt to buy such a potentially redundant asset. “What new technology, capability, patent or license is being sought?” asks one observer. “What new market areas or services will be expanded? What new operating economies of scale will emerge post-merger? The proposed merger appears to offer few obvious answers. Ultimately, one must ask, ‘how does this add value for the client?’”

“More brokers create more overhead without changing the size of the commercial brokerage pie,” states another perplexed expert, who goes on to ask, “Wouldn’t CBRE be better off if G&E failed, or are they playing defense against Cushman & Wakefield? The new reality for everyone is that commissions are falling, and the correct survival strategy is yet to emerge.”

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