Breaking News - Top Firm Announces Exciting Merger

Flags Tibor Fazakas

Well at least this firm's staff wake up to an exciting future - a merger without layoffs!

And here's how Jefferies CEO Richard Handler and President Brian Friedman announced it to staff:

Subject: Another good day at Jefferies, not to mention a very exciting future

We are thrilled to announce this morning the merger of Jefferies Group, Inc. and Leucadia National Corporation – the details are in our press release below and will be discussed in an investor conference call at 9 AM EST. There also is a presentation that is now available on our website, and we will hold a Town Hall for all of us at 430 PM EST today with dial in information to follow.

As many of you know, Jefferies has had a deep and personal relationship with Leucadia for decades. We have been their investment banker for 20 years. We have been business partners investing in high yield, distressed, and special situations through JHYT and its predecessor for over twelve years. Since 2008, Leucadia has been our largest shareholder and both Ian Cumming and Joe Steinberg have been on our Board. With their support, our firm doubled in size these last five years, while our industry contracted and contorted. Joe and Ian are huge supporters of Jefferies, and have been mentors to many of our senior leaders. Today, we make our partnership permanent (subject to final shareholder approval).

The bottom line is this: Jefferies is now the largest operating engine within one of the most successful public investment companies in history. Our combined company will have over $9 billion of shareholders’ equity and roughly $5 billion of pro forma combined cash and short-term investments. While this merger means our firm will be even stronger and better able to serve our clients than ever before, the bottom line for every person at Jefferies throughout all of our offices spanning the globe is that: FOR TODAY, TOMORROW, AND WELL INTO THE DISTANT FUTURE, IT IS BUSINESS AS USUAL. 

The two of us will be working from our very same offices, with the exact same duties at Jefferies. We will also become CEO and President, respectively, of the parent company, Leucadia. Our focus as always, will continue to be to build the best firm possible, with laser focus on continued long term growth, profitability, investment in our platform, brand enhancement, market share gains, productivity, margin improvement and protection against volatile periods.

Words cannot adequately express how excited we are about this opportunity that provides us with the unparalleled, long-term foundation to work with all of you to continue to build the world’s best (and perhaps only) entrepreneurial, client focused, global, and full service investment banking firm.

Thank you,

Rich and Brian

P.S. Here are some simple questions and answers to initial thoughts that might be on your mind:

Q. Will there be layoffs at Jefferies to create synergies?

A. No. This is about operating leverage and long term value creation. Your role on Monday will be your role on Tuesday. Same for the people to the left of you, to the right of you, above you and below you.

Q. Are we changing our name?

A. No. We are proud to be Jefferies.

Q. What happens to our shares and RSU’s?

A. Every share and RSU will become a share or RSU of Leucadia (LUK) at a ratio of .81 (If you had 100 shares of JEF, upon closing you will have 81 shares of LUK. All vesting terms and other provisions will remain identical. Jefferies will cease trading as a public company, but we will continue to file all public documents and comply with all rules/regulations as before today.

Q. Will Jefferies’ philosophy of focusing on a conservative balance sheet, high levels of liquidity, strong risk management, and zero tolerance for even a drop of arrogance change in any way?

A. No.

Q. Most importantly, what does this mean for our clients?

A. It means we can continue with even greater confidence to build the pre-eminent global investment bank (that is not a bureaucratic bank holding company) into the far distant future and best serve our clients.

Q. What should I tell my clients?

A. Jefferies is now the single biggest business (over 40% of book value) of one of the largest, best-capitalized and best-known investment holding companies in the world. Leucadia is NYSE-listed and a constituent member of the S&P 500. Jefferies has partnered with Leucadia over decades and, since 2008, Leucadia has been our single largest shareholder, owning more than 25% of Jefferies and having two seats on our Board. Jefferies senior management will now also lead Leucadia, ensuring continuity at Jefferies. As part of a cash-rich, liquid Leucadia, with over $9 billion of equity, Jefferies is even stronger and better able than ever to serve our clients. Jefferies will remain a separate legal entity to Leucadia, will maintain our separate credit ratings (which have been already been vetted by the rating agencies) and will continue to file periodic 10K and 10Q reports with the SEC.

Q. What does it mean for Rich and Brian?

A. It means we will continue to have the opportunity of a lifetime. We have told you all many times that we believe we are still in the early stages of building a great business. That said, we will now be relying on each of you EVEN MORE to get the job done with passion, intelligence, integrity, humility and grace. It is time to create even more value for our soon to be enlarged shareholder base.

 

LEUCADIA NATIONAL CORPORATION AND JEFFERIES GROUP, INC. TO MERGE

Strategic Combination, With Over $9 Billion

In Shareholders’ Equity, Supports Long-Term Value Creation

· Leucadia, with its 35-year track record as one of the world’s leading long-term investors, will continue to acquire and own businesses and investments that will leverage the knowledge base, opportunity flow and execution capabilities of both the Leucadia and Jefferies management teams and operating businesses. Leucadia’s existing businesses and investments have strong inherent value-creation potential.

· Jefferies will continue its over 50-year focus in investment banking and the capital markets, and continue to maintain a highly liquid, client-focused balance sheet. Jefferies has grown rapidly over the past two decades and is well-positioned to continue this growth with Leucadia’s support. As a subsidiary of Leucadia, Jefferies will have greater balance sheet resilience and flexibility to guard against, and take advantage of, market dislocations and opportunities. Jefferies currently pays substantial Federal income taxes and thus its expected ongoing pre-tax earnings will materially accelerate utilization of Leucadia’s net operating losses, creating incremental value for all shareholders.

· Combined company will be well-positioned to capitalize on Leucadia’s investment expertise and Jefferies’ investment banking and capital markets platform, including opportunities for enhanced growth, diversification and profitability that are expected to result from the combined management structure and increased business interaction.

NEW YORK, NEW YORK, NOVEMBER 12, 2012 – Leucadia National Corporation (NYSE: LUK) and Jefferies Group, Inc. (NYSE: JEF) today announced that the Boards of Directors of both companies have approved a definitive merger agreement under which Jefferies’ shareholders (other than Leucadia, which currently owns approximately 28.6% of the Jefferies outstanding shares) will receive 0.81 of a share of Leucadia common stock for each share of Jefferies common stock they hold. This exchange is intended to be tax-free to Jefferies’ shareholders. The merger, which is expected to close during the first quarter of 2013, is subject to customary closing conditions, including approval to effect the merger by both Leucadia and Jefferies shareholders. In order to avert the possibility that the transaction would result in the application of tax law limitations to the use of certain of Leucadia’s tax attributes, the merger agreement limits the amount of Leucadia shares that can be issued to certain persons that would otherwise become holders of 5% of the combined Leucadia’s common shares by reason of the merger.

Concurrently with the execution of the merger agreement, Leucadia, Richard Handler, Chief Executive Officer and Chairman of Jefferies, and Brian Friedman, Chairman of the Executive Committee of Jefferies and one of its Directors, have each agreed pursuant to separate voting agreements, among other things, to vote their respective shares in favor of the transaction; and Ian Cumming, Leucadia’s Chief Executive Officer and Chairman, and Joseph Steinberg, Leucadia’s President and one of its Directors, have each agreed pursuant to separate voting agreements, among other things, to vote their respective shares in favor of the transaction. These voting agreements represent approximately 18.3% and 31.5% of the outstanding shares of Leucadia and Jefferies, respectively.

Upon the closing of the merger, Mr. Handler will become the Chief Executive Officer of Leucadia, as well as one of its Directors, and also remain Jefferies’ Chief Executive Officer and Chairman; Mr. Friedman will become Leucadia’s President and one of its Directors, and also remain Chairman of the Executive Committee of Jefferies; and Mr. Steinberg will become Chairman of the Board of Leucadia and will continue to work full time as an executive of Leucadia. Mr. Cumming will retire as Chairman of the Board and Chief Executive Officer of Leucadia upon the closing of the transaction and remain a Leucadia Director. The other Leucadia officers will continue in their present positions. In addition, upon the closing of the transaction, the four independent members of the Board of Directors of Jefferies also will join the Leucadia Board of Directors; the size of the Leucadia Board of Directors will be increased to fourteen.

Leucadia will continue to operate in its current form, except that the merger agreement contemplates that Leucadia’s Crimson Wine Group, with a book value of $197 million, will be spun out in a distribution that is intended to be tax-free to current Leucadia shareholders prior to the completion of the merger.

Jefferies, which will be the largest business of Leucadia, will continue to operate as a full-service global investment banking firm in its current form. Jefferies will retain a credit rating that is separate from Leucadia’s. Jefferies’ existing long-term debt will remain outstanding and Jefferies intends to remain an SEC reporting company, regularly filing annual, quarterly, and periodic financial reports.

Following the transaction, 35.3% of Leucadia’s common stock will be owned by Jefferies’ shareholders (excluding the Jefferies shares owned today by Leucadia and including Jefferies vested restricted stock units). Leucadia’s Board of Directors has approved a new share repurchase program authorizing the repurchase from time to time of up to an aggregate of 25 million Leucadia common shares, inclusive of prior authorizations. Leucadia’s Board also has indicated its intention to continue to pay dividends at the annual rate of $0.25 per common share, but on a quarterly basis following the merger.

Cumming observed: “Joe and I have been partners for 34 years. He will be Chairman of the Board of the combined enterprise. His role as Chairman of the Board, along with other Leucadia and Jefferies Directors, will ensure continuity and propel our continued success. Rich and Brian managing the company will bring to fruition the abundant and profitable opportunities that will be realized by this merger. My relationship with Rich and Brian, both as advisors and, more recently, as business partners and Jefferies Directors, showed me they can manage Leucadia profitably long into the future. Their ability to manage and grow Jefferies through the elongated financial bubble, successfully navigate the crises that followed where others could not, and protect the firm from the attacks based on false information exactly one year ago with deftness and grace, should comfort all!”

Steinberg stated: “I am absolutely thrilled that Rich and Brian will be joining me as we move forward with our combined company. Ian and I have enjoyed working together for 34 years. He invited me into Leucadia and to be his partner. I am forever grateful for that opportunity. Our partnership produced great returns for shareholders and we have had a lot of fun. I expect that Rich and Brian will continue on the same track and intend to help in every way.”

Handler stated: “Having known Joe and Ian for over two decades, this transaction represents the realization of a personal dream for me. Brian and I look forward to leading Leucadia, while continuing to serve as the hands-on management of Jefferies, which will become Leucadia's largest operating company. This merger will allow us to continue to create long-term value for all of our clients, shareholders, employee-partners and bondholders. I am honored with the trust and confidence Ian and Joe are demonstrating by allowing us to carry on their life's work.”

Friedman said: “This merger will allow us to operate from a position of even greater strength, take advantage of opportunities that arise in and around the business of Jefferies, and continue Leucadia’s longstanding practice of smart value acquisitions and investments. Our substantial combined equity base, ample liquidity and long-term focus will all support meaningful long-term value creation for Leucadia and Jefferies’ shareholders. We also view with great enthusiasm the opportunity to work with Leucadia management, who have been instrumental in helping Ian and Joe achieve Leucadia’s exceptional track record, as well as the management teams of each of the companies in which Leucadia is invested.”

 

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