Southwest Securities could be sold to big shareholder

Parent company SWS Group receives $7-a-share offer from Hilltop Holdings

Jan 10, 2014 @ 1:34 pm

By Bruce Kelly

broker-dealers, mergers & acquisitions
+ Zoom

SWS Group Inc., the parent company of Southwest Securities Inc., on Friday confirmed that its board had received a takeover bid from one of its biggest investors, Hilltop Holdings Inc.

Hilltop, which owns a bank, a mortgage lender and another financial services firm, First Southwest Co., already owns 24% of SWS common stock. Its offer is to acquire the remaining outstanding shares of SWS that it doesn't already own for $7 a share, a 16% premium over the stock's closing price on Thursday.

“Consistent with its fiduciary duties and in consultation with its financial and legal advisers, SWS Group's board of directors will review the proposal to determine the course of action that it believes is in the best interests of the company and its stockholders,” according to a statement on the SWS website.

“The SWS Group board will make its recommendation to stockholders in due course. SWS Group stockholders are advised to take no action at this time,' according to the statement.

Investors welcomed the news. SWS shares were trading at about $7.28 a share on Friday morning, an indication that other companies might be interested in bidding for the company.

SWS has fended off takeover bids in the recent past. In 2011, the SWS board rejected a hostile takeover solicitation from Sterne Agee Group Inc.

SWS has a variety of business lines, including clearing and municipal securities underwriting that matches up with Hilltop's First Southwest. Both are also based in Texas.

Southwest Securities has 150 broker-dealer and registered investment adviser clearing and custody clients. It also has 167 employee representatives, mostly in Texas and Oklahoma.

Another unit, SWS Financial Services Inc., is the independent-contractor arm of the company, with 297 independent reps.

SWS Group has struggled since the financial crisis.

In its fiscal year ended last June, it saw annual revenue decline by 10% to $318.1 million. Losses increased dramatically between fiscal 2012 and 2013, rising from $4.7 million to $33.5 million.

Hilltop's offer would benefit SWS Group, one industry observer said.

“A Hilltop purchase will give SWS Group the capital needed to expand. Without such a capital infusion, SWS would continue to flounder in an industry where scale is increasingly necessary in order to compete and survive," ” said Jon Henschen, an industry recruiter. “

“Seven years ago we had around 300 clearing firms while today we are down to around 16,” he said. “The need for scale is the primary driver to the consolidation we've seen.”

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