LPL stock rocked by investor's plan to cut stake

Private equity shop Hellman & Friedman sets 8.1 million share distribution

Nov 13, 2012 @ 2:02 pm

By Bruce Kelly

LPL, private equity, Hellman & Friedman
+ Zoom

The share price of LPL Financial Holdings Inc. Ticker:(LPLA) took a hit Tuesday after the company reported that one of its main private-equity investors intended to reduce its stake in the independent broker-dealer.

Three funds managed by Hellman & Friedman LLC plan to distribute 8.1 million shares of LPL's common stock held by them to their “respective limited partners,” or investors, according to a filing with the Securities and Exchange Commission.

The share price of the company, which began trading publicly two years ago, dropped to as low as $23.17 this morning after closing on Monday near $28 per share. By afternoon, the share price bounced back to around $27.

Earlier this year, LPL said that its private-equity owners, Hellman & Friedman and TPG Capital LP, would sell $510 million in company stock in a secondary offering. Most of the shares sold in LPL's November 2010 initial public offering were controlled by longtime employees and brokers with the firm.

A company spokeswoman, Betsy Weinberger, said: “After this distribution, Hellman & Friedman remains a large shareholder with 17% of shares outstanding and will retain its two seats on our board. We value their continued partnership with LPL Financial."

The private-equity distribution drove the “meaningful share decline,” noted Alex Kramm, an analyst at UBS Investment Bank.

The company's “shares were down as much as 18% this morning on the disclosure that private equity investor Hellman & Friedman was distributing 8 million shares [30% of its holding, and 15% of the float] to its [limited partner] investors,” Mr. Kramm wrote in a research note Tuesday. “With [limited partner] investors likely selling their distributed shares in the open market, significant private-equity ownership remaining, and fundamentals continuing to be challenging, we see more downside risk for the stock, particularly now that it has recovered a bit from its lows.”

Mr. Kramm noted that the significant private equity ownership of LPL shares “creates overhang” for the stock, and that the “combination of a challenging macro environment, continued margin pressure and increased scrutiny by investors could drive incremental downside.”

His rating of the stock was unchanged at a “sell,” with a price target of $25 per share, also unchanged.

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