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.
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