JEF - Jefferies Group

[Guest rimm_never_sleeps]

this should make luk a much more volatile equity in the future. that could be good for people who have confidence in mgmt and understand the company.

[glider3834]

I haven't looked at all the details, but this looks all about succession plannning for Leucadia first & foremost. Rich Handler is a proven performer but matching S & C's  record would be a serious achievement!

[Viking]

Globe & Mail article from today: http://www.theglobeandmail.com/globe-investor/investment-ideas/jefferies-deal-logic-driven-by-accountancy/article5204183/

[roundball100]

Have followed LUK for a while (have held it in past).  Many on this forum worship these guys.  Fantastic track record and long-term vision.  JEF merger seems entirely in line with LUK's record of opportunism.  A perhaps over-simplified view here is this solves both the succession plan issue and expedites utilization of tax-loss assets.  But, it seems this comes with the very significant cost of LUK becoming much less diversified, and more beholden to the unseen risks inherent in major banking.  While presently appears to be quite attractive for both value and owner-operator reasons, to me it would be much more so if not accompanied by such major changes in the company ... I guess I need to understand more about what risks come along with JEF.  For those who see JEF-LUK as a win-win, how do you so easily accept the uncertainties that the investment banking exposure brings? 

[Partner24]

Even if you buy LUK at a good price, in the end, what you buy is trust in people that manage it. You have to do it in every business that you buy, but especially with LUK. You have to trust that they made a good decision with that transaction. But that trust is far from being blind: they have a long track record of both stewardship and talent and I don't see why they would want to scrap their decades of work to build their masterpiece with that transaction.

 

But again, in the end, buying LUK is a matter of trust.

 

 

 

 

[Grenville]

Have followed LUK for a while (have held it in past).  Many on this forum worship these guys.  Fantastic track record and long-term vision.  JEF merger seems entirely in line with LUK's record of opportunism.  A perhaps over-simplified view here is this solves both the succession plan issue and expedites utilization of tax-loss assets.  But, it seems this comes with the very significant cost of LUK becoming much less diversified, and more beholden to the unseen risks inherent in major banking.  While presently appears to be quite attractive for both value and owner-operator reasons, to me it would be much more so if not accompanied by such major changes in the company ... I guess I need to understand more about what risks come along with JEF.  For those who see JEF-LUK as a win-win, how do you so easily accept the uncertainties that the investment banking exposure brings?

 

Based on my understanding of JEF, it's run much more conservatively than most investment banks. JEF has never had the luxury of low cost deposits so they have had to be mindful of their balance sheet and funding sources. One example of the quality of their funding and model was how they were able to survive a real world stress test when rumors were thrown around last November in the midst of the MF Global bankruptcy.

 

Also JEF has less prop trading as a driver of its revenue. Most of the business is client flow based. Also, the derivative book is simpler and a good deal of it is exchange traded. There are more details in the JEF investment thread as well.

[giofranchi]

Have followed LUK for a while (have held it in past).  Many on this forum worship these guys.  Fantastic track record and long-term vision.  JEF merger seems entirely in line with LUK's record of opportunism.  A perhaps over-simplified view here is this solves both the succession plan issue and expedites utilization of tax-loss assets.  But, it seems this comes with the very significant cost of LUK becoming much less diversified, and more beholden to the unseen risks inherent in major banking.  While presently appears to be quite attractive for both value and owner-operator reasons, to me it would be much more so if not accompanied by such major changes in the company ... I guess I need to understand more about what risks come along with JEF.  For those who see JEF-LUK as a win-win, how do you so easily accept the uncertainties that the investment banking exposure brings?

 

February 22, 1936

It is said about the wealthy banker Gorge F. Baker of New York:

1. He always bought sound stocks and bonds when they were offered below intrinsic value.

2. He always had liquid cash for such a purpose.

3. After he bought such stocks and bonds he held on “until the cows came home.” He never made a practice of speculative buying and selling and never tried to catch the market swings. He simply bought when bargains were offered. He never sold unless the stock market was going bad or the price offered was too good to refuse.

 

The Great Depression A Diary – Benjamin Roth

 

Investment Banking is like Insurance: in the wrong hands they both might lead to disaster. Vice versa, if you know the owner-manager, if he has an outstanding track-record, and, most important of all, if you understand his process and agree with it, both Investment Banking and Insurance could be great!

 

giofranchi

[Guest hellsten]

Great analysis of the LUK and JEF merger:

http://brooklyninvestor.blogspot.com/2012/11/leucadia-jeffries-merger.html

[giofranchi]

Great analysis of the LUK and JEF merger:

http://brooklyninvestor.blogspot.com/2012/11/leucadia-jeffries-merger.html

 

Yes! Very good indeed!

Thank you for posting,

 

giofranchi

[Junto]

 

 

February 22, 1936

It is said about the wealthy banker Gorge F. Baker of New York:

1. He always bought sound stocks and bonds when they were offered below intrinsic value.

2. He always had liquid cash for such a purpose.

3. After he bought such stocks and bonds he held on “until the cows came home.” He never made a practice of speculative buying and selling and never tried to catch the market swings. He simply bought when bargains were offered. He never sold unless the stock market was going bad or the price offered was too good to refuse.

 

The Great Depression A Diary – Benjamin Roth

 

Investment Banking is like Insurance: in the wrong hands they both might lead to disaster. Vice versa, if you know the owner-manager, if he has an outstanding track-record, and, most important of all, if you understand his process and agree with it, both Investment Banking and Insurance could be great!

 

giofranchi

 

If interested, I would recommend the book (if you can find it) George F. Baker and his Banks 1840-1955. He had his hands in founding many of the largest commercial banks. Good read for the banking types.

[giofranchi]

If interested, I would recommend the book (if you can find it) George F. Baker and his Banks 1840-1955. He had his hands in founding many of the largest commercial banks. Good read for the banking types.

 

Junto,

I know you won’t believe it… but I have just bought that book this morning!! :)

I am not really “the banking type”, but I think it will be a very good read anyway!

Thank you,

 

giofranchi

 

[PlanMaestro]

Maybe you guys knew this already but I found it interesting.

 

http://www.leucadia.com/presentations/presentation_11_12_12.pdf

 

Jefferies and Leucadia’s relationship has been built over twenty years. Jefferies and Leucadia have worked together and partnered on countless financings and strategic  transactions, including Jefferies High Yield Funds (2000 – 2007), Jefferies High Yield Holdings joint  venture (2007 – ongoing) and the Fortescue investment (2006 – 2012).

[PlanMaestro]

http://www.economist.com/news/finance-and-economics/21566648-strange-combination-conglomerate-and-investment-bank-theres-beef

[zippy1]

New Barron's article, similar conclusion as the Economists one.

http://online.barrons.com/article/SB50001424052748704526104578117311538206332.html?mod=BOL_hpp_mag

 

[boilermaker75]

I took the arbitrage route this morning writing JEF 16-strike puts. The Decembers for $0.40 and the Januarys for $0.75.

[cpan]

Regarding JEF's business, it looks pretty good given the historical book value growth.  Could someone share what they would worry about JEF's business?  Does the business have to be run lemming like where you are forced to do the worst deal that your competitor is willing to write?  Or is it because risk management will never have good control over the deal makers?  Can't they just be the middle man or is the competition too tough to do that?  I know the reliance on short term funding issue which maybe LUK merger may or may not resolve given LUK doesn't have a reliable earning stream either (or maybe the cows does come home :-)).  I appreciate any insight you may have. 

[ShahKhezri]

Having transitioned to a role within the capital markets over the past 6 months and heading into bonus time in the next 3 months I can say a couple of things:

 

1.  Expectations are lowered every month or so.

2.  The addition of clawbacks on bonuses with a 5 year tail make it very hard to do something stupid just to push up your compensation.

3.  Every group has a respective pool.  DCM, IB, Structured Products, S&T.

 

I don't know how it's done at JEF, but Handler will own a lot of combined LUK.  The disasters that happened with the other IB's, the compensation was mostly up front with some stock compensation.  It's definitely a good question to ask at the annual meeting. 

 

Ideally, what I'd like to see from LUK/JEF is a business that has two engines, not both of them need to work at the same time, business can be great at JEF and ok at LUK during the really good times and ok at JEF and great for LUK (because you would think capital would be redeployed from JEF to LUK to buy cheap assets). 

 

About 14% of my portfolio consists of the LUK/JEF combination. 

[Myth465]

Would you guys buy LUK or JEF now. I know I am being lazy. I am sure someone has already done the math. I am very interested, now that they have cleaned up the portfolio and have a business which throws off consistent cash. I plan to buy a position and follow for the next few years to learn about IB.

[boilermaker75]

Would you guys buy LUK or JEF now. I know I am being lazy. I am sure someone has already done the math. I am very interested, now that they have cleaned up the portfolio and have a business which throws off consistent cash. I plan to buy a position and follow for the next few years to learn about IB.

 

 

JEF is trading at a discount to what you will obtain IF the merger goes through. So if you think there is a high certainty of the merger happening you would gain a little more in the long run by buying JEF.

[gfp]

Would you guys buy LUK or JEF now. I know I am being lazy. I am sure someone has already done the math. I am very interested, now that they have cleaned up the portfolio and have a business which throws off consistent cash. I plan to buy a position and follow for the next few years to learn about IB.

 

 

JEF is trading at a discount to what you will obtain IF the merger goes through. So if you think there is a high certainty of the merger happening you would gain a little more in the long run by buying JEF.

 

The deal is very likely to go through, but don't forget to factor in the Crimson Wine spin-off.  JEF holders won't get Crimson shares, LUK holders will.

[LC]

Would you guys buy LUK or JEF now. I know I am being lazy. I am sure someone has already done the math. I am very interested, now that they have cleaned up the portfolio and have a business which throws off consistent cash. I plan to buy a position and follow for the next few years to learn about IB.

 

 

JEF is trading at a discount to what you will obtain IF the merger goes through. So if you think there is a high certainty of the merger happening you would gain a little more in the long run by buying JEF.

 

The deal is very likely to go through, but don't forget to factor in the Crimson Wine spin-off.  JEF holders won't get Crimson shares, LUK holders will.

 

Thanks for reminding...I was thinking about a buy JEF/sell LUK arbitrage opportunity until you reminded me of the Crimson divestiture.

 

For the interested, the trade would have been:

 

-Merger terms: JEF owners receive .81 shares of LUK after transaction

-LUK trades @ $20.88 as of this writing

-Implies a JEF share price of ($20.88 * .81) or $16.91

-JEF trades at $15.97

 

Therefore: Sell LUK / Buy JEF in equal dollar amounts.

[BargainValueHunter]

Credit:onefamilysblog.com

 

http://4.bp.blogspot.com/-DFtmxj3Vs5o/UKdjzs30srI/AAAAAAAAIs8/jL4e7KWUhlo/s1600/Ian-Cumming-Leucadia-National-Corp-Q3-2012-13F-Summary.jpg

 

 

[mcliu]

I think you should subtract the $0.81 and the $0.25 missed dividend from the current trading price of LUK before multiplying by the conversion factor.

 

So example, $20.88 - $0.81 (Crimson Spinoff) - $0.25 (Missed Dividend) = $19.82 x 0.81 = $16.05 implied price of JEF

 

Does anyone have any details or opinions on some of LUK's operating assets like National Beef, Conwed, and some of their more esoteric assets, like Sangart and the Gasification projects? I'm curious as to the thesis behind the biotech/energy initiatives and what the potential returns are. As an investor in JEF, I feel more comfortable with the investment bank and some of their operating assets, but less comfortable with these random projects.

[txlaw]

Getco makes offer for KCG.

 

http://www.businessweek.com/news/2012-11-28/getco-proposes-buying-knight-capital-at-3-dot-50-a-share

 

 

[abcd]

I think you should subtract the $0.81 and the $0.25 missed dividend from the current trading price of LUK before multiplying by the conversion factor.

 

So example, $20.88 - $0.81 (Crimson Spinoff) - $0.25 (Missed Dividend) = $19.82 x 0.81 = $16.05 implied price of JEF

 

Does anyone have any details or opinions on some of LUK's operating assets like National Beef, Conwed, and some of their more esoteric assets, like Sangart and the Gasification projects? I'm curious as to the thesis behind the biotech/energy initiatives and what the potential returns are. As an investor in JEF, I feel more comfortable with the investment bank and some of their operating assets, but less comfortable with these random projects.

 

Don't you have to add at least one $.075 (actually it should be approximately 30% more, so about $.0975) that you are likely to get from Jeffries?