Piper Jaffray downplays takeover talk

But reports of a possible Chinese suitor heat up the floundering firm's share price
MAR 01, 2012
Piper Jaffray & Co. didn't exactly throw cold water on reports today that the company was in talks with a potential Chinese acquirer, but has said it will stay independent. The company — which operates an investment bank and asset management unit — was the subject of a story in Deal Reporter which said that Piper Jaffray's talks with an unnamed Chinese company could include a takeover, a purchase of a stake or the formation of a joint venture. Such rumors are not surprising, given Piper Jaffray's recent performance. The company recorded a net loss of $102.0 million in 2011, and revenues were down 14% from the previous year. In 2010, the company turned a profit of more than $24 million. The news buoyed the firm's stock price, which climbed more than 3% from yesterday's close of $24.58. The price was at $25.24 at 2:38 PM EST. In a statement, Piper Jaffray noted that it “intends to remain an independent public company,” but noted that in the normal course of business, it weighs a number of corporate development ideas. “These include possibilities in the Asia market, such as a joint venture, as the company considers alternatives for improving the performance of its small Hong Kong-based subsidiary,” according to the statement. Piper Jaffray spokeswoman Jennifer A. Olson-Goude did not immediately return a call seeking further comment. Analysts noted that while an outright purchase of Piper Jaffray by an Asian company would be a surprise, a joint venture is a little easier to believe. For one thing, it's been done before. Mizuho Financial Group in Japan invested some $120 million into Evercore Partners Inc. in 2008. The next year, Evercore entered a joint venture with China-based Citic Securities Co. Also in 2009, JMP Group Inc. kicked off a joint venture with China Merchants Securities Co. Ltd. “You don't often see financial transactions from the East buying into Western companies," said Michael Wong, an analyst at Morningstar Inc. "Usually it is Western banks opening offices and expanding in Asia,” He added that Piper Jaffray's Hong Kong-based subsidiary, Goldbond Capital Holdings Ltd., could have already attracted some attention from Chinese suitors. “Piper Jaffray has some Asian operations that it's been touting over the last few years, but it's faltered somewhat,” Mr. Wong said. “So they may have been on the radar in Asia.” He noted that, aside from the recent report, he knew of no other instance in which an Asian bank has interested in expanding into the investment banking business in the Western Hemisphere. “Many of the large investment banks [in the U.S.] have a strong position and these markets are mature,” Mr. Wong said. “If anything, financial institutions are trying to break into the emerging markets, the Middle East and Asia.” Piper Jaffray essentially left the wealth management business when it sold its retail brokerage to UBS AG in 2006. As of the end of 2011, Piper Jaffray's asset management group was running $12.2 billion.

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