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On Nov. 12th Leucadia National (LUK) announced it was buying Jefferies Investment Bank (JEF) for $2.6 Bn in stock. They're paying about a 22% premium for what the stock was trading. Leucadia plans to swap 0.81 of its shares for each Jefferies share. Leucadia already owned 28.6% of Jefferies prior to this merger, and is paying ~ 1.2x of JEF book value.

Jefferies gets the use of Leucadia National larger balance sheet. Leucadia has a liquid B/S of $2.4 Bn, less $960 MM debt.

Is this a buy that makes sense ?

For Jobseekers, I've included a video with Jefferies job advice at the end>>>

I believe so. JEF stock on Fri. ($15.75) was at almost half its peak of $30 about three years ago. Average analyst recommendation on the stock was a "HOLD" previously. Jefferies has BBB credit rating (S&P) while Leucadia is a junk BB+. S&P said it expects to upgrade LUK after the merger.

Jefferies CEO Richard Handler is expected to take over as CEO after the merger. Leucadia’s president, Ian Steinberg, will become Chairman. Jefferies was recently in the news for a $400 MM lifeline investment in trading firm Knight Capital.

Times are testing for investment banks. Stifel Financial agreed to buy KBW in a deal valued at $575 million. Gleacher & Co recently put itself up for sale.

Who is Leucadia National ? Leucadia is a holding company that also owns National Beef Meatpacking (a meat-packer), the Hard Rock Hotel & Casino in Biloxi, Miss and plastics and lumber businesses, among others. Leucadia also owned half of Jefferies junk-bond trading operation.

Comments (4)

  • BlackHat's picture

    Don't know if it necessarily makes sense for LUK, but I've loved JEF for the past several months as one of those inbetween banks that's a full-service financial institution but still small enough to be nimble and snatch up the kinds of deals that larger banks would have a conflict of interest on or that would appear unsuitable for a "too big to fail" institution. Good managers and most of the MDs I've ever met from JEF have been pretty sharp guys. Also if I remember correctly there's been somewhat of an exodus of employees from a few other banks with entire teams migrating to JEF for whatever reason. I've always wanted to do a little digging on them and see if it's a stock worth owning, but looks like someone beat me to it.

    I hate victims who respect their executioners

  • In reply to BlackHat
    West Coast rainmaker's picture

    BlackHat wrote:
    Don't know if it necessarily makes sense for LUK, but I've loved JEF for the past several months as one of those inbetween banks that's a full-service financial institution but still small enough to be nimble and snatch up the kinds of deals that larger banks would have a conflict of interest on or that would appear unsuitable for a "too big to fail" institution. Good managers and most of the MDs I've ever met from JEF have been pretty sharp guys. Also if I remember correctly there's been somewhat of an exodus of employees from a few other banks with entire teams migrating to JEF for whatever reason. I've always wanted to do a little digging on them and see if it's a stock worth owning, but looks like someone beat me to it.

    Met a MD who did exactly this - I think he was in satellite tech at CS, then moved to JEF in the crisis. I got the impression they have a more "eat what you kill" attitude than a lot of banks on the street, at least at the senior level. Established MM firms are looking pretty good since the crisis - as the number of mega-deals has fallen, the BBs have been forced to play in MM's established territory.

  • BTbanker's picture

    BH's investment advice hasn't steered us wrong yet.
    I'm betting the ranch (and barn) on JEF!!

  • BatMasterson's picture

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