Man Financial interested in Refco's futures biz-source Fri Oct 14, 2005 5:20 PM ET NEW YORK, Oct 14 (Reuters) - Man Group's (EMG.L: Quote, Profile, Research) brokerage unit has expressed interest in buying the futures business of embattled U.S. brokerage Refco Inc. (RFX.N: Quote, Profile, Research), according to a source familiar with the matter. Man Financial, a unit of the world's largest publicly traded hedge fund, is the major rival to Refco in global futures trading. http://today.reuters.com/stocks/Quo...&symbol=EMG.L&storyid=232772+14-Oct-2005+RTRS
some more, just in http://today.reuters.com/stocks/Quo...&symbol=EMG.L&storyid=234477+14-Oct-2005+RTRS
That would be unfortunate ... Refco had its strengths and Man has been further behing the curve. Refco actually has a durable brand, if it can isolate these issues with the CEO and move on. What a shame ...
For most of the week, I thought that TH Lee would want to pump capital into Refco and try to put the firm onto firm grounds and then selling assets for better value than the confusion and negative publicity for the last few days. However, if the news reports that the regulators are talking to potential buyers (Man, Fimat, Goldman, etc) seem to indicate is that TH Lee is not willing to providing additional funding, if the reports are to be believed. This is too bad, it is understandable from TH Lee's part in that they got caught with an unexpected situation, and they are not certain how many more potentially holes there are in Refco as a whole, and won't want to risk more capital than what they have invested already. However, by not directly coming out and signal their strong backing, the situation can get worse before it gets better. Confidence, whether investors or customers are hard to regain once lost. Disclaimer, what below is a pure speculation from my personal perspective. First of all, anybody will buy anything for the right price, but assuming that a "fair" discounted price will be used for Refco the futures division, then the potential buyers may be. Man maybe a good fit, but their one-side-fit-all aproach would mean that they would just take most of the client base, and dump most of Refco's infrastructure and substantial head count. Fimat would be a good fit as well, but what I know is that SG (the parent company) is not terribly happy with the margins generated by the Fimat division, as clearing futures and derivatives is a low margin business. I would doubt that Goldman would be interested (of course, for the right price, everybody can be), since they are already exposed in terms of the potential underwriter liability. HSBC maybe a possibility, given Joe Murphy's prior job as head of HSBC Futures in US, however HSBC's recent focus have been on credit derivatives (using the gigantic bank balance sheet). ABN AMRO would have been a great fit, four years ago, when they were expanding rapidly in the US, AA is now much more cautious about big purchases. Fortis would be a good choice, it is a well run organization, and is looking to expand in the US derivative market, especially in derivatives clearing, but it is not that big internationally, and may not want to pony up the cash (at least $500M) for Refco futures business. Merrill is another one, but Merrill Pro is still integrating the PAX and Sage businesses, not sure they want to take on integrating another firm in the process. BofA maybe already too exposed with both being the underwriter, and syndicate lead for Refco's existing subordinated debt. Another problem looming in the horizon is that Refco is due to make some performance related payments to the Cargill IS buy. I would bet that if Refco misses the payment, the Buy would be reversed, with Cargill retaining control in some way. Having Cargill as a long term customer would have been a good revenue generator for Refco. Just my $0.02
Further behind the curve? Yes I would say that Man has been a safe distance behind refco in so far that it is not embroiled in a criminal law suit that will probably bring about its downfall. Refco does have a durable brand -there will always be someone that is prepared to take more risks than anyone else, and they will always get caught out eventually. If it "isolates" these issues they will find they they are so widespread that they can move on to bankruptcy. Tell me bluehorseshoe are you naive or are you a client/long?
Man is a top quality player but they are hard nosed. They will only take an interest in Refco if the business/es suit their interests. They will only take it on if they are going to make money out of it and benefit their shareholders. They're not empire builders just for the sake of it.
I think the chances are more likely that Refco will gets some bank guarantees to keep them afloat. Its way to early in the game for anyone to touch this. further details must emerge to clarify the potential liabilities that Refco faces from its lenders and shareholders to make a business decision on the assets of the company.
www.timesonline.co.uk/article/0,,2095-1827479,00.html excerpt ... -The Refco collapse will force Man, the UK-based hedge-fund manager, to postpone plans to spin off its brokerage business, Man Financial. Man had looked closely at the demerger after the huge price achieved by Refco at its flotation in August. The Man spin-off would have given about £1 billion back to shareholder-
I don't think resuscitating Refco is likely to be an option TH Lee will pursue with any seriousness. Unless they want to be in the business of operational turnarounds, they will want to withdraw whatever is left of the capital they have committed to Refco as quickly as possible so it can be redeployed in the next deal. Refco only tied up half a billion of capital for one year out of a fund that is probably 7 or 8 billion in size I should think. Better to withdraw the cash, get back to their core competencies and redeploy it in some nice steady business with growth prospects. I mean, this is a firm that owns Simmons Mattress and Nortek construction materials ... do you think they want to roll up their sleeves and turn around a prime brokeage, an equities operation and chase people like you and me for margin in the FCM business? Here's the Hoover's capsule on TH Lee Thomas H. Lee Partners is the teddy bear at the gate: It only pursues companies that want to be pursued. Known as a "friendly" leveraged buyout (LBO) firm, it uses a mix of debt, funds from institutional investors, and its own money to buy companies (it currently has about $12 billion of capital under management). Unlike the fearsome LBO outfits of the 1980s, Thomas H. Lee eschews the axe for the handshake; it builds up a stake and courts management cooperation. Typical acquisitions are middle-market companies with the potential for growth (if not headlines). Lee then sells the revamped acquisitions or takes them public. Founder Thomas H. Lee owns about two-thirds of the firm he founded in 1974.