Leucadia buys out Jefferies for $3.7B

Conglomerate Leucadia National Corp. Monday doubled down on its investment banking bet, agreeing to acquire Jefferies Group Inc. in a deal valued at $3.7 billion.

New York-based Leucadia, a holding company sometimes known as "the other Berkshire Hathaway" with holdings ranging from energy, lodging, timber and finance, already owns about 28.6% of Jefferies after investing in the firm in November 2011.

Terms of the takeover call for Jefferies shareholders to receive 0.81 shares of Leucadia, with Jefferies shareholders owning about 35.3% of Leucadia post-deal.

The purchase values Jefferies at $17.66 per share, a premium of 24% from Friday's close, with the deal carrying a total equity value of about $2.6 billion, or $3.7 billion when Leucadia's existing ownership is included. Leucadia bought its initial stake as Jefferies was trading down near $10 apiece on fears the bank could be brought down in the wake of the MF Global Inc. collapse.

Jefferies, also of New York, is a full-service firm providing clients in the U.S., Europe and Asia with investment banking, sales, trading, research and strategic planning. Post-deal Jefferies chairman and CEO Richard Handler would run the combined firm, with Leucadia president Joseph Steinberg serving as chairman. Ian Cumming, who has run Leucadia along with Steinberg, will retire as CEO post-deal.

Cumming in a statement said that his firm's investment in Jefferies and subsequent meetings with the bank's management team has convinced him that the team "can manage Leucadia profitably long into the future."

Handler in a statement said that he and his team "look forward to leading Leucadia, while continuing to serve as the hands-on management of Jefferies," which would become Leucadia's largest operating company. Post-deal Leucadia is expected to remain in its current form, but it is considering spinning its Crimson Wine Group, with a book value of $197 million, to shareholders.

The deal would also allow Jefferies to lower its tax rate by using tax benefits Leucadia holds from past operating losses.

Jefferies & Co., Citigroup Global Markets Inc. and JPMorgan Chase & Co. acted as financial advisors to Jefferies, with Citi also providing a fairness opinion to the transaction committee of the Jefferies board.

Morgan, Lewis & Bockius LLP acted as legal adviser to Jefferies. Wachtell, Lipton, Rosen & Katz advised the transaction committee.

Leucadia was advised by Rothschild, with UBS Investment Bank providing a fairness opinion to the Leucadia board. Weil Gotshal & Manges LLP acted as legal adviser to the company and Proskauer Rose LLP to the board.