IB Really Wants REFCO, IB now top bidder at $858M

Discussion in 'Wall St. News' started by CPTrader, Oct 24, 2005.

  1. Interactive Raises Refco Bid to $858 Mln, Tops Dubai Offer
    Oct. 24 (Bloomberg) -- Interactive Brokers Group LLC raised its offer for Refco Inc.'s futures trading units to $858 million, topping a bid by the Dubai government and billionaire Ronald W. Burkle, as competition heated up for the collapsed New York-based company.

    Interactive, which bid $790 million last week, beat the Dubai group's $828 million bid, based on the value of the regulated capital of the futures business on Oct. 17, when Refco filed for bankruptcy. J.C. Flowers & Co. has bid about $768 million. The new bid was announced by Arthur Hahn, bankruptcy lawyer for Greenwich, Connecticut-based Interactive, in an interview.

    The flurry of new bids may generate more money for Refco's creditors, who are owed more than $16 billion, according to the company's estimate as of Aug. 31. More than 100 lawyers packed a hearing presided over by U.S. Bankruptcy Judge Robert Drain today as Refco and potential bidders argued about the rules for a bankruptcy auction of the units.

    ``There's been a heightened level of interest in distressed assets and a lot of money going into them, so you'd expect to have multiple bidders,'' said Jennifer Chien, who helps manage $50 billion at PNC Advisors in Philadelphia.

    Man Group Plc and New York-based Marathon Asset Management LLC may also make bids, according to court papers. Leon Black's Apollo Management LLC also said it's a potential bidder for all of part of New York-based Refco.

    Customer Exodus

    Refco, formerly the largest independent U.S. futures trading firm, said on Oct. 10 that chief executive Phillip Bennett hid a $430 million debt. Bennett was charged on Oct. 12 with securities fraud, sparking a customer exodus and a bankruptcy filing on Oct. 17. The company revised its assets down by two-thirds the next day and said its financial statements couldn't be relied upon.

    The Dubai's group's bid is for 111 percent of the net regulatory capital of Refco's futures business, which was $746 million on Oct. 17. Interactive's new bid was for 115 percent of the capital, compared with 106 percent last week. Flowers's bid was for 103 percent.

    The Dubai group made its bid through DIGL Inc., a Delaware company formed by Dubai Investment Group LLC and the Yucaipa Cos., Burkle's investment company.

    Burkle, 52, is ranked by Forbes magazine as the 112th wealthiest American, with a net worth of $2.3 billion. Yucaipa, which he founded in 1986, specializes in buying supermarket chains, including Fred Meyer Inc., which it sold to Kroger Co. for $12.6 billion in 1999. Burkle agreed to invest $150 million in Pathmark Stores Inc. in March. He raised about $3 million for Democratic Party presidential candidate John Kerry at two fund- raisers in March 2004, after hiring former U.S. president Bill Clinton as a Yucaipa senior adviser in 2002.

    Global Bidding

    ``Having global bidding is good for everybody,'' said Michael Gorham, a former director at the Commodity Futures Trading Commission who now heads the center for financial markets at Chicago's Illinois Institute for Technology.

    Drain said he may schedule an auction for Nov. 9. At a lunch break in the hearing this morning, lawyers for Refco and its bidders and creditors met at a law office in lower Manhattan near bankruptcy court. Drain told them to iron out differences.

    Marathon Asset Management is a New York-based hedge fund with about $10 billion under management. It was set up in 1998 and employs 90 people. It specializes in high risk and distressed debt, emerging markets, convertible bonds and real estate, according to its Web site.

    Man Financial, in its court filing today, said it may buy all of Refco, not just the futures trading business. Marathon said in its papers that it may act with others in making a bid. Neither company state a bid value. Flowers said it will scrap its agreement if the judge doesn't approve a sale by Nov. 11, which he said today that he would.

    Man Financial spokesman Paul Downes declined to comment on the company's bid filing. Man Group is the world's largest hedge fund company and one of the world's largest futures brokers, employing more than 3,000 people in 15 countries, according to its Web site.

    Apollo Management

    Apollo Management LLC, affiliated with Leon Black, 54, formerly of Drexel Burnham Lambert Inc., may also bid for the futures business, Apollo's lawyer Robert Greenfield told Drain. Unlike Man and Marathon, Apollo filed no papers with bankruptcy court about a potential bid. Greenfield told Drain that Apollo wants to see Refco's books before it makes a bid.

    Last month Apollo raised $10 billion for the world's second-largest buyout fund. Apollo, founded in 1990, has made equity investments of about $12 billion. Spokesman Steven S. Anreder declined to disclose returns. Its investments have included movie chain AMC Entertainment Inc. and luggage maker Samsonite Corp.

    Breakup Fee

    Drain was asked by Refco to approve paying Flowers a fee equal to 2.8 percent of the purchase price should Refco sell the assets to another buyer.

    Abadi objected to such a breakup fee, which represents ``a potential chilling element to other bidders,'' according to court papers.

    Under the terms for an auction proposed by Refco, interested buyers must offer cash and bid at least $25 million more than the Flowers offer, plus the 2.8 percent breakup fee.

    Any bidders that meet those and other requirements will get access to Refco's non-public financial information to conduct due diligence.

    Customer Accounts

    Customer accounts at Refco's futures business have fallen to $3.4 billion from $7.5 billion in the days before the filing, Refco lawyer J. Gregory Milmoe told Drain. Flowers initially had a clause that would have allowed it to scrap its agreement should accounts dip below $3.75 billion. Over the weekend, that figure was changed to $3 billion, Milmoe said.

    J. Christopher Flowers, a former partner at New York-based Goldman Sachs Group Inc. founded J.C. Flowers in 2000. Interactive, started 28 years ago by Thomas Peterffy, ranks as the largest stock-options market-maker in the U.S. by transactions, said Bill McGowan, a managing director for the company at its office in Chicago.

    Refco had liabilities of $16.8 billion as of Aug. 31. Its biggest creditors include Austria's Bawag P.S.K. Bank and an investment fund controlled by New York-based money manager Jim Rogers, bankruptcy documents show.

    The Regulated Units

    The company's regulated businesses include Refco LLC, Refco Overseas Ltd. and Refco Singapore Ltd. units. It deals in exchange-traded futures and is regulated by the Washington-based Commodity Futures Trading Commission.

    Based on its August assets, Refco filed the 14th-biggest bankruptcy in U.S. history on Oct. 17, a week after disclosing that former Chief Executive Officer Phillip Bennett concealed debts from investors and auditors. The company also said that its 2002 through 2005 financial statements couldn't be relied upon.

    Bennett, 57, was arrested Oct. 12 by U.S. authorities and charged with securities fraud, prompting a customer exodus and the shutdown of several units, including Refco Capital Markets Ltd. He may face life in prison if convicted.

    Shares of Refco rose 29 cents to $1.29 at 3:13 p.m. New York time in over-the-counter trading. The company went public for the first time in August with shares priced at $22 each.

    Refco's 9 percent notes due 2012 rose 7 cents to 67 cents on the dollar, according to Trace, the bond-price reporting system of the NASD. That's down from 108 cents on Oct. 7, before New York-based Refco disclosed an accounting scheme that led to a bankruptcy filing for some of it units.

    The price of Refco's loan, with $644 million outstanding as of May 31, rose to about 95 cents on the dollar, according to three loan traders. The debt traded as low as 68 cents on Oct. 14. Bank loans rank before bondholders and other creditors for repayment in the event of a bankruptcy.

    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:
    Tom Becker in U.S. Bankruptcy Court in
    New York tbecker5@bloomberg.net;

    Last Updated: October 24, 2005 15:16 EDT

  2. A YHOO link speculated the winning bid maybe about 1 billion $;
    should be interesting reguardless, with '' more than 100 lawyers packed in the hearing'':cool:
  3. FredBloggs

    FredBloggs Guest

    ....either way, thats a lot of money ib are splashing out just so they can get their hands on a reliable platform! anyway, refco stuff dont do stocks so its gunna be another lame duck (with bird flu)

  4. saxon


    I just hope IB doesn't go down the tubes, biting off more than it can chew.

    Fortunately, I closed my Refco account 6 months ago...dodging that bullet. But my IB account is still open. Don't want to have to bet on getting lucky TWICE. :eek:

    Wall St. is becoming like a mine field; you have to be careful what you step on.....or what you step IN!

  5. J.C. Flowers drops Refco bid: lawyer
    Monday October 24, 5:42 pm ET

    NEW YORK (Reuters) - Private equity J.C. Flowers & Co. on Monday dropped out of a bidding race for the futures brokerage unit of bankrupt Refco Inc. (Other OTC:RFXCQ.PK - News), the firm's lawyer told a bankruptcy hearing.
    Lawyer James Sprayregen from Kirkland & Ellis LLP said the New York firm was withdrawing its bid after a bankruptcy judge said he would only approve of a sale agreement with Flowers if a break-up fee was lowered to $5 million from over $20 million and the expense reimbursements lowered to $1 million.

    The head of J.C. Flowers, former Goldman Sachs banker Christopher Flowers, who was present at the hearing, declined to comment.

  6. what made you close 6 months ago?

    just curious?
  7. mhashe


    I wonder what Flower's and his cronies in Goldman Sachs were smoking to think they could get away with his deal. I doubt they were really interested in Refco, but rather the break up fee. Doing a similar deal in Japan where mind-bending corruption is part of doing business is one thing; but to extrapolate the same technique into US markets and then expect to not be called on it............lol. The next logical step once a high bidder is confirmed would be to perform an extensive investigation on how Refco managed to go public and why much of the liabilites that led to its collapse were hidden during the ipo. I smell jail time for some wannabe "demi-gods".

  8. Well said!

    JCF & GS were truly crazy to think this would fly. Today's events proves that they thought the yy coudl make 25-30M o=in 4- 6 weeks (via breakup fees), etc for doing essentially nothing. Note that Man & the Dubai group were prepared to bid during tha tsame wekend that GS hurrieldy helped JCF sign the deal/MOU with REFCO.

    GS is going to be sued many times over on this deal.

    I still wonder why Tom Lee didn't inject more cash and attempt to prevent the REFCO bankruptcy. Doing so would have prevented the mass exodus of customer assets and restored confidence.
  9. Babak


    Any news on a class actions against GS for dropping the ball on DD pre IPO?
  10. md2952


    Glad Flowers will lose break-up fee. IB/Timber Hill took over the Value-line Index option book from Drexel-Burnham on the PHLX. I was a specialist clerk at the time. Petterfy has come a long way. Man...those were the days. LOL
    #10     Oct 25, 2005