If the sale of Morgan Keegan by Regions Financial doesn't happen soon, it may not happen at all. According to a
Reuters story published on Monday, a consortium of
private equity buyers including Thomas H. Lee Partners, the Carlyle Group and the
Blackstone Group may now be the last best hope that a deal gets done.
The strategic buyers — a partial list that reportedly includes
Wells Fargo,
Stifel Financial,
Raymond James and RBC Capital Markets — seem to be long shots now. For openers, share prices have fallen for publicly traded companies that might be interested in Morgan Keegan & Co. Inc., which would make a stock-based sale more expensive. Meanwhile, the cost of borrowing money has gone up for these companies, as well.
Recruiters also seem to think that Morgan Keegan advisers want to keep their Memphis headquarters and like their offices and regional managers. They don't want the aches and pains that a merger with another firm would entail. While very few advisers have left the firm so far, some have apparently plotted their exit strategies and will bolt if they don't like the buyer.
“From what we've heard, a
private equity buyer is more likely,” said Marty Mosby, an analyst with Guggenheim Securities.
The trio of THP, Carlyle and
Blackstone would certainly fit the bill.
They are big enough to do the deal and they could share the risk if the brokerage business went into a multiyear decline — not unimaginable given the current economic and market uncertainty. A P-E firm could reasonably expect to have a better environment to sell or spin off the business within a few years, even if things get worse in the short-term.
Advisers at Morgan Keegan would probably be happiest with that scenario. Ideally, the deep-pocketed trio will offer decent retention packages and take a hands-off approach to the business. Recruiters say the advisers are deeply loyal to the brand and would stay if they felt the firm's “culture” remained intact.
Price is the issue. Regions, which owes $3.5 billion in TARP money — and which in late September saw fund manager Bruce Berkowitz unload half of his holdings in the company — was reportedly expecting at least $1 billion for Morgan Keegan when it put it up for sale in June.
That was then. Now, volatile markets have hurt the outlook for the brokerage industry and the risks for a buyer have gone up dramatically. Indeed, Regions may be lucky to get the $789 million it paid for the firm in 2001.
Still, shelving the planned sale of Morgan Keegan would likely be disastrous for morale at the B-D. “People were told 'You're not part of our plans,'” said Mr. Mosby. “They can't undo that.”
