Leucadia National Corp., a holding company whose stock has a reputation as one of the world's leading value investments, announced Monday that it will buy the remainder of investment bank Jefferies Group Inc.
The deal is worth $2.8-billion (U.S.), Bloomberg reports. The acquisition will buffer Jefferies's balance sheet against further volatility and bring both companies "opportunities for enhanced growth, diversification and profitability," the companies said in a news release.
The merger also marks the first major management shift in Leucadia's 35-year history, as Ian Cumming retires as chairman and chief executive officer and the firm's co-founder Joseph Steinberg leaves the post of president to become chairman. Jefferies executives take over these posts while retaining their existing roles.
But the choice may not be much of a surprise for those who follow Leucadia – Mr. Cumming and Mr. Steinberg have praised Jefferies's management in the past. When Jefferies almost disappeared in November, 2011, after MF Global crumpled, Leucadia raved about how its management resuscitated the company. "We are proud of our ownership and association with Jefferies and believe their response was their finest hour," Leucadia's management wrote in its annual letter.
Leucadia, named after a seaside California town, has often been called a "mini-Berkshire Hathaway" for its successful imitation of Warren Buffett's value-investing strategies. Much like Mr. Buffett, Mr. Cumming and Mr. Steinberg have a history of investing in undervalued companies that can be positioned to create more value for shareholders.
Their faith in the Jefferies management team in its time of crisis signals that Leucadia will keep this attitude going forward. In a news release Monday, Mr. Cumming said he was confident the new team "can manage Leucadia profitably long into the future."
Jefferies's share price jumped 14 per cent Monday, while Leucadia's fell 3 per cent. Leucadia's price is notably undervalued itself, with a P/E ratio of 10.2 and a price-to-book ratio of 0.85. Murray Stahl, chairman and chief investment officer of Horizon Kinetics LLC, said in a third-quarter commentary last month that Leucadia "has one of the best records of value creation among publicly traded U.S. companies. Its low valuation, he said, "is one of the better predictive attributes and is particularly compelling when combined, as in the case of Leucadia National, with proven owner-operators."
Leucadia's diversified portfolio contains everything from wineries to hotels to beef processing companies. The company also had a pre-existing 29 per cent stake in Jefferies.
The merger is expected to close in the first quarter of 2013. Jefferies CEO Richard Handler will become Leucadia's CEO; Brian Friedman, chairman of the Jefferies executive committee, will become president of Leucadia.