Jefferies agrees to sell itself to Leucadia in $2.8 billion deal

‘Sugar Daddy’

“The MF Global scare last year also exposed how fragile Jefferies’s banking model was, and it needed to find a big sugar daddy to protect it and allow it enough capital to grow,” Mark Williams, a lecturer at Boston University’s School of Management, said today in an e-mail. “The merger is good for Jefferies’s shareholders as it reduces risk associated with a firm that is too small to stay independent and produce adequate profit.”

Moody’s said it’s putting Leucadia on review for an upgrade following the deal as the firm has been able to monetize investments in a “timely” manner, according to a statement today from the rating company.

“Jefferies’s ongoing performance and its ability to maintain its investment-grade rating will remain an ongoing consideration in Leucadia’s rating in part because Jefferies will be the company’s largest investment,” Moody’s said in the statement.

Warren Buffett

Leucadia has joined in ventures with Warren Buffett’s Berkshire Hathaway Inc., including a 2001 deal to extend a $6 billion loan to Finova Group Inc., a Scottsdale, Arizona-based lender.

Buffett praised the work of Steinberg and Cumming in 2010, a year after they joined with the billionaire to run Berkadia Commercial Mortgage, previously known as Capmark.

“Joe and Ian did far more than their share of the work” with Finova, Buffett wrote to shareholders of Omaha, Nebraska- based Berkshire in 2010. “I was delighted when they called me to partner again in the Capmark purchase.”

Jefferies will become part of a firm that has a more successful track record in acquiring businesses than Berkshire Hathaway, said Bruce Berkowitz, whose Fairholme Fund is among the biggest shareholders in Jefferies and Leucadia. The combination of the two is “an unbelievable organization,” Berkowitz said in a phone interview.

Merchant Banking

“With Leucadia, Jefferies becomes what I would call the classic investment bank and broker-dealer with a more beefed-up merchant-banking operation,” said Berkowitz, who manages more than $7 billion as head of the Fairholme Fund. “As a shareholder of Jefferies, I’m for. As a shareholder of Leucadia, I’m for.”

Rothschild was Leucadia’s financial adviser on the Jefferies transaction, and Weil Gotshal & Manges LLP was legal adviser. Jefferies was its own financial adviser with JPMorgan Chase & Co., and Morgan Lewis & Bockius acted as legal adviser. UBS AG was a financial adviser and provided a fairness opinion to Leucadia’s board.

Bloomberg News

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