How Morgan Keegan deal could be impacted by MF Global

MF Global's collapse into bankruptcy last week threw yet another monkey wrench into the sale of regional brokerage firm Morgan Keegan & Co. Inc., which declines in value as time passes, industry recruiters said
DEC 11, 2011
MF Global's collapse into bankruptcy last week threw yet another monkey wrench into the sale of regional brokerage firm Morgan Keegan & Co. Inc., which declines in value as time passes, industry recruiters said. Financing a Morgan Keegan acquisition, which could cost between $750 million and $1.2 billion, has emerged as a significant question in light of the increasing volatility in the equity markets that began in August. Some banks at that time began to pull back from lending to private-equity funds looking to acquire riskier assets such as a significant brokerage firm such as Morgan Keegan, which has about 1,200 registered representatives and is a unit of Regions Financial Corp. After MF Global Holdings Ltd. filed for Chapter 11 bankruptcy protection last Monday, private-equity buyout firms lowered bids on Morgan Keegan by at least $200 million when financing markets continued to deteriorate, according to a report last Thursday by Bloomberg. Morgan Keegan agreed to be sold to Regions in 2000 for about $789 million. Industry recruiters were quick to point out that while no direct connection exists between the businesses of MF Global and Morgan Keegan, private-equity bidders could use the collapse of an investment bank as a reason to lower bids. Thomas H. Lee Partners LP and Jeffrey Greenberg's Aquiline Capital Partners LLC submitted the highest offer at about $750 million, according to Bloomberg, which quoted sources who couldn't be identified, as the talks are private. The group topped a joint bid from The Carlyle Group and Blackstone Group LP, according to the sources, who said that previous offers valued the unit at more than $1 billion. “My sense is that both these private-equity groups are looking at the firm and saying, "We don't know how valuable Morgan Keegan really is.' Every day that goes by, the franchise has less value,” said recruiter Rick Peterson. “If the financing is more difficult, that makes the acquisition more difficult,” said recruiter Danny Sarch. “The clock is ticking against management making [a deal] happen.” Evelyn Mitchell, a spokeswoman for Regions Financial, declined to comment. Regions Financial, which owes $3.5 billion in Troubled Asset Relief Program money, said in June that it was putting Morgan Keegan on the block. The bank is paying 5% interest on the preferred securities held by the U.S. government. The interest rate bumps up to 9% toward the end of next year. In fact, earlier reports said that Regions Financial offered to lend $200 million to help in financing the Morgan Keegan acquisition.

TARP TIMING

Morgan Keegan is based in Memphis, Tenn., and had a $26 million third-quarter profit, Regions Financial said Oct. 25. That was up from $22 million a year earlier and down from $60 million in the second quarter. Regions Financial chief executive Grayson Hall told investors in September that the TARP repayment would depend on achieving “sustainable profitability” and an improvement in credit metrics, not just a successful resolution of the review of Morgan Keegan. Regions Financial has hired The Goldman Sachs Group Inc. to find ways to manage capital and increase shareholder value. Brokerage firm Stifel Financial Corp. also bid for Morgan Keegan and was rejected, people with knowledge of the matter said last month. Among the reasons was a concern that Morgan Keegan executives and brokers, some of whom opposed a sale to a competitor, might quit before the completion of the purchase and jeopardize the deal, they said. This article was supplemented with reporting from Bloomberg. [email protected]

Latest News

Florida B-D, RIA owner pitches bold long-term plan to sell to advisors
Florida B-D, RIA owner pitches bold long-term plan to sell to advisors

IFP Securities’ owner, Bill Hamm, has a long-term plan for the firm and its 279 financial advisors.

Fiduciary failure: Ex-advisor who sold practice fined after clients lost millions
Fiduciary failure: Ex-advisor who sold practice fined after clients lost millions

A former Alabama investment advisor and ex-Kestra rep has been permanently barred and penalized after clients he promised to protect got caught in a $2.6 million fraud.

Why the evolution of ETFs is changing the due diligence equation
Why the evolution of ETFs is changing the due diligence equation

As more active strategies get packaged into the ETF wrapper, advisors and investors have to look beyond expense ratios as the benchmark for value.

Most asset managers are using AI, but few let it call the shots
Most asset managers are using AI, but few let it call the shots

Survey finds AI widely embedded in research and analysis, but barely touching portfolio construction or trade execution.

LPL, Raymond James score fresh recruits in advisor recruiting battle
LPL, Raymond James score fresh recruits in advisor recruiting battle

Two firms land teams managing more than $1.1 billion in combined assets from Kestra and Edward Jones.

SPONSORED Are hedge funds the missing ingredient?

Wellington explores how multi strategy hedge funds may enhance diversification

SPONSORED Beyond wealth management: Why the future of advice is becoming more human

As technical expertise becomes increasingly commoditized, advisors who can integrate strategy, relationships, and specialized expertise into a cohesive client experience will define the next era of wealth management