Leucadia slims down to focus on Jefferies finance arm

Leucadia National Corporation, the oil-to-beef conglomerate that owns the investment bank Jefferies, announced a plan to sell $1.3bn of its non-finance industry assets as it seeks to make the most of a broad revival on Wall Street.

The company will also rename itself Jefferies Financial Group, to reflect its greater focus and the change from being what Rich Handler, its chief executive, called “a relatively random” collection of assets.

Leucadia took control of Jefferies, the last independent investment bank of any significant size in the US, five years ago and has poured resources into the business.

The bank has been hiring aggressively, picking up teams of investment bankers from European rivals such as Deutsche Bank and Credit Suisse, while taking advantage of looser rules governing investment banks outside the purview of federal banking regulators. 

In a statement on Monday Leucadia said it had agreed to sell 48 per cent of National Beef Packing to Marfrig Global Foods of Brazil for about $900m in cash, and all of its equity interests in Garcadia, a car-dealership business, to its current partners, the Garff family, for a net $375m in cash and $50m in redeemable preferred equity. 

Shares in the New York-listed group were up 13 per cent by lunchtime trading, on volumes about seven times the recent average. 

The deals “complete Leucadia’s transformation from a highly diversified, but relatively random, group of assets before the combination with Jefferies into a financial services company with clear focus and drive”, said Mr Handler, in the statement. 

“We are excited and energised by the simplification of our business mix, the focus and brand awareness of our anticipated name change, our abundance of cash, and the strength and potential of our businesses.” 

One area of particular focus has been the near-$1tn market for leveraged loans, where low interest rates have combined with strong demand from specialist credit vehicles to encourage the riskiest of companies to lever up. So far this year Jefferies has arranged $5bn of new deals, according to Bloomberg, vaulting ahead of Citigroup and RBC to ninth in the rankings. 

Jefferies’ trading businesses have also benefited from a recent pick-up in market volatility. Last month the company posted a 30 per cent quarter-on-quarter rise in net revenues from stock and bond trading, for the period ending in February. 

“Congratulations employee partners!” Mr Handler tweeted later on Monday morning. “Big day as we take mighty $JEF to next level.” Mr Handler also serves as chief executive of Jefferies.

Monday’s announcement was “more far-reaching” than expected, and at better than expected valuations for the assets offloaded, said Chris Kotowski, analyst at Oppenheimer & Co. He said that following the deals, Jefferies would be in a “unique” position: laden with cash and able to combine investment banking with merchant banking, just as Goldman Sachs, Morgan Stanley and others did with alacrity, before a big regulatory squeeze in the aftermath of the crisis.

At Leucadia’s last investor day, held behind closed doors in October, Mr Handler talked about the possibilities of allowing investment bankers to scour the world for deals, then select some of the best opportunities to put on the group’s own balance sheet, according to Mr Kotowski.

Jefferies has “a $2.8bn war chest to do equity investments. Name a single other financial services company in that position,” Mr Kotowski said. “I can guarantee you they’re high-fiving.”

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