More Bidders for REFCo

[CPTrader]

You say the Abadi bid cannot be considered for several reasons - buy only give one reason - presence of a foreign government - Dubai/UAE. What are the other reasons? And what's wrong with a foreign govt purchasing a US private financial enterprise.

I think Flowers won't get it for two reasons;

1. I can see the bankruptcy judge being inclined to approve a bid for the entire REFCO Inc vehicle and I am not sure Flowers i sprepared to bd for the entire group.

2. I see a bidding war - now we have Dubai, IB & Calyon Financial and expect more serious bids/consortia to emerge. I doubt if Flowers will be aggresive in his bidding to win. He may ultimately take comfort in receiving hs $21.8M+ break-up fee plus his expenses (the MOU provides for a riembursment of expenses up to a $5m cap). Not bad for a month or so of work!

Well, as I said the situation is still very fluid but needs to be resolved ASAP or as the REFCO lawyer said, REFCO will melt to death!

personally, I am rooting for Calyon, it owuld be a very good megr e with an exisitng expereinced FCM management and teh strng backing of teh Credit Agricole group.

Godlfield and Winkleman of GS have great pedigree but what do they really know about the futures business?

What really surpised me i sthat GS via their GSEC unit (former SLK) didn't buy it. Or maybe they will in the auction (now that Greenhill is the adviser) and pay Flowers his 22M breakup fee!!

Quote from rufus_4000:

I haven't been involved in the buy-out of a clearing firm for a couple of years now, so my statistics maybe foggy.

Why people think that Flowers got a "sweet heart" deal I don't understand. Flowers paid 103% of regulatory equity in Refco FCM, which is a good deal, but not a fantastic one. In the light of recent account pull outs and the associated risks of market erosion, I think Flowers paid fair market price.

Clearing firms don't have the margins that an investment bank does, they usually hover around the 8-10-12% range, yes Refco FCM last year generated 14% pre-tax margins (according to the S-1), which is very good, but with the uncertainty of erosion, and reputation loss, 1x equity is not bad. I have seen bids of less than equity for clearing firm sales. For instance, BofA was required to sell off their retail clearing business as a part of their settlement with SEC regarding mutual fund scandal, they only got around 65-70% of equity as the final sale. Refco FCM is probably not in as bad of a situation as BofA, but the market erosion is as signifcant.

The Abadi bid (supposedly $1B for the entire firm) can not be considered for several reasons, one is is that it is entirely backed by the Dubai Government, dealing with selling of assets to a government firm is problematic for both TH Lee as the owner and potentially the SEC as well. There are very few cases where foreign government have purchased US based financial services firms, none significant that I can think of. Rejecting the Abadi bid is probably the right thing to do.

2.8% break-up fee is very high, but that's up to the seller (TH Lee) and the buyer. The 2.8% exactly offsets the premium (3%) that Flowers pays above equity. Nicely structured, I must say.

All of all, the deal will go through, I would imagine that would be 1 or 2 more non-serious bids, but the Flowers buy will go through. I would imagine that Flowers will change the name (he did the same with LTCB to Sensei), run it for a year, then sell it to an investment bank, or gobble up one or two smaller FCMs and try to go public again.

There are some implicit trust between Flowers and the Goldman bankers, obviously. He probably saw some due-diligence related information. But to get it done in 2-3 days is still quite amazing.

 

[nassau]

speaking of bidding

does anyone know why the options for RFXCQ can only be used for exiting or closing your existing positions?

was looking at buying calls to further hedge the position and wait since I am already hung.

w

 

[PuffyGums]

Quote from CPTrader:

You say the Abadi bid cannot be considered for several reasons - buy only give one reason - presence of a foreign government - Dubai/UAE. What are the other reasons? And what's wrong with a foreign govt purchasing a US private financial enterprise.

I'll spell it out. Do you really want to hand Osama a knife to be pointed at the heart of the US economy?

 

[CPTrader]

Quote from PuffyGums:

I'll spell it out. Do you really want to hand Osama a knife to be pointed at the heart of the US economy?

That is such a myopic and hateful comment.

Something to ponder, the "Osamas" ofthe world as you term it already own tens of billions of dolars of US treasuries and you are bothered about them owning a measly FCM/prime broker. Very wise!

 

[2cents]

sorry, just curious, who is abadi really? can't say his name has crossed any ocean yet honestly... whats his track record? how credible the bid, the experience of the dubai dudes etc in running the type of business they r bidding for? i'm sure they must be really flush with the oil prices we've seen this year but... just musing here but, say the sultan of brunei walks over with $2bio and wants to buy refco llc for his daughter, what wld u think?

 

[CPTrader]

Quote from 2cents:

sorry, just curious, who is abadi really? can't say his name has crossed any ocean yet honestly... whats his track record? how credible the bid, the experience of the dubai dudes etc in running the type of business they r bidding for? i'm sure they must be really flush with the oil prices we've seen this year but... just musing here but, say the sultan of brunei walks over with $2bio and wants to buy refco llc for his daughter, what wld u think?

Abadi supposedly runs a hedge-fund/buyout fund. Additionally, the Blackstone Group is part of or advising the Dubai Investmnet agency on their bid.

 

[2cents]

Quote from CPTrader:

what's wrong with a foreign govt purchasing a (US) private financial enterprise.

everything dude, sthg only a frenchman wldn't understand i guess... not saying that for u of course....

 

[2cents]

Quote from CPTrader:

Abadi supposedly runs a hedge-fund/buyout fund. Additionally, the Blackstone Group is part of or advising the Dubai Investmnet agency on their bid.

blackstone, i know, thats the right caliber. abadi, all i know is he is a refco creditor, stuck for $20+mio, not exactly a totally disinterested party... not that my opinion matters in any way with regard to closing the deal etc, but just trying to understand the merit of some of those bids, other than delaying the process and destroying the remaining value... to the great benefit of IB and other refco competitors for instance...

 

[buzzy2]

Quote from CPTrader:

And what's wrong with a foreign govt purchasing a US private financial enterprise.

I agree.

There was a similar case a while ago, the chinese wanted to buy some US oil company. My opinion was: let them buy at the top so we can buy it from them at the bottom.

I wouldnt have any objections to arab money entering the US, on the contrary that would be great since their elite will have interests on US ground and that's good from a security point of view.

I think blocking their people and their money only increases resentment and hostility. You guys have to visit South Spain the Marbella area and London, Kensington/Knightsbridge area, arab money is one of the reasons of those areas economic prosperity. Unless you're a local in that case you won't like high real estate prices.

 

[CPTrader]

PLEASE SOMEONE SAVE REFCO FROM IB!!! PLEASE!!

CALYON FINANCIAL, DUBAI GROUP - WHERE ARE YE?!!

Interactive Brokers Group Bids to Buy Refco's Futures Business
Oct. 20 (Bloomberg) -- Interactive Brokers Group LLC, the biggest independent U.S. broker-dealer, said it made a bid for the regulated futures units of Refco Inc. that exceeds the bid of J.C. Flowers & Co.

Interactive Brokers, based in Greenwich, Connecticut, will pay 106 percent of Refco's net regulatory capital, more than the 103 percent offered by J.C. Flowers, Interactive said in a letter to Refco's lawyers at Skadden Arps Slate Meagher & Flom, according to an e-mailed statement today. The offer does not include a breakup fee. Refco filed for bankruptcy Oct. 17.

``By this letter we hereby submit a bid at a higher level,'' Interactive Brokers said in the letter.

The case is In re Refco Inc., No. 05-60006, U.S. Bankruptcy Court, Southern District of New York.



To contact the reporter on this story:
Andrew Dunn in New York at
adunn8@bloomberg.net; or Tom Becker in U.S. Bankruptcy Court in
New York tbecker5@bloomberg.net.

Last Updated: October 20, 2005 17:34 EDT



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