More bidders for REFCO include Interactive Brokers. I think it is highly unklile the Flowers bid stands as is. I forsee the entire REFCO, INc. being sold for about $1.25B The story is still young........... === Print Refco Wants to Sell Assets Right Away, Lawyers Say (Update1) Oct. 19 (Bloomberg) -- Refco Inc., the futures trader that filed for bankruptcy protection Oct. 17, wants to begin selling the company's assets right away, a company lawyer told a judge today. ``This is an ice cube that has been melting at an extraordinarily rapid rate,'' J. Gregory Milmoe, Refco's lawyer, told U.S. Bankruptcy Judge Robert Drain at a hearing today in New York. ``Nonetheless the company is committed to stopping the melting.'' Refco agreed to sell its regulated futures trading units for $768 million to J.C. Flowers & Co. That sale is subject to court approval, even though those units weren't part of the parent's original bankruptcy filing. Other bidders that may include the government of Dubai will be permitted to bid against Flowers for any or all of Refco's units. Interactive Brokers Group LLC, a Greenwich, Connecticut- based electronic brokerage, is interested in bidding for Refco's regulated futures business, said Isabelle Clary, an Interactive Brokers spokeswoman. Gary J. Mennitt, a lawyer for Interactive, said he thought the Flowers bid was too low and that Interactive may make a higher bid. Interactive, which Mennitt said has $2 billion and ``significant liquidity,'' wants more time to do research on Refco, he said. Asset Snafu Today's hearing follows Refco's report that it used inaccurate financial statements when it reported assets of $48.8 billion in its original bankruptcy petition. The company filed a second petition late yesterday listing assets of $16.5 billion. Refco has ``minimal'' cash on hand, said Donald Bernstein, a lawyer for Bank of America Corp., the agent of a $648 million syndicated loan to Refco. Bernstein, a partner at Davis Polk & Wardwell, told Drain that Bank of America has a lien on Refco's cash collateral and other assets and asked the judge to provide adequate protection for the bank's claims. Refco's filing for bankruptcy protection means that all of its units, solvent or not, will be offered for auction under court supervision. Milmoe said Refco has gotten 30 inquiries, three of which it considered serious enough to deal with. Refco's lawyers asked Drain to schedule a sale hearing for next week. Drain didn't commit to a date. Volume Investment Group and Interactive Brokers Group LLC are both interested bidders. Some of the other bidders want more time to examine the company's finances, a process known as due diligence. ``The Flowers group made this commitment without the due diligence,'' Milmoe told the court. ``It is at least possible that other people can come forward and make that commitment.'' Break-Up Fee If another bidder wins the auction, Flowers is entitled to a breakup fee of 2.8 percent of the sale price. Refco will post the rules of the auction later this week, as it's required to do under bankruptcy law. All bidders will have the opportunity to examine Refco's books. In its original filing on Oct. 17, Refco listed $48.8 billion in assets as of February 2005, adding in a footnote that the company's financial statements as of February 2002-2005 couldn't be relied upon. Court papers submitted yesterday listed assets of $16.5 billion as of August 2005. Milmoe, an attorney at Skadden Arps Slate Meagher & Flom, told the judge that Refco wanted to sell ``the greater part of the regulated business'' and put the proceeds into the unregulated part of the company ``to preserve substantial value.'' Milmoe said that as of last night there was $4.1 billion in customer accounts at the regulated units. ``We have a relatively brief window in which we may well be able to capture some value,'' Milmoe told the judge. Broker Salaries Richard Levin, another lawyer for Refco, told Drain the company wants to continue paying commissions to brokers. ``Our assets are our brokers,'' said Levin, who also works at Skadden. He told the judge he didn't want the brokers to leave the company. Drain said that while the company could continue paying salaries, Refco would have to file a separate request to keep paying commissions. Refco announced Oct. 10 that it had discovered a $430 million debt to the company owed by then-chief executive Phillip Bennett, who was then relieved of his duties. Bennett, 57, was arrested the next day and charged with securities fraud for hiding the debt, which he has repaid. The company held its first public offering of stock in August. The shares, which had traded as high as $29.90 on the New York Stock Exchange, plunged almost 50 percent last week. The NYSE delisted Refco on Oct. 18. Today the shares rose 19 cents to 84 cents in over-the-counter trading. 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; Tom Becker in U.S. Bankruptcy Court in New York tbecker5@bloomberg.net. Last Updated: October 19, 2005 16:32 EDT Print
wishful thinking, flowers is getting the entire refco almost for free considering cash on books. goldman connections always pay off, the board wont even listen to the other offers
Why do Interactive Brokers want a load of floor brokers? Goes against their business model. Though I guess they would vote for an end to pit trading!
Would'nt that expose the board members and goldman to criminal and civli liability? I mean after all, we're not living in a banana republic. There are other heavy hitters involved with this deal. Flowers is probably working his goldman connections, but I doubt he'll get it at the price he wants. Can't imagine the civil liability ( maybe even criminal ) where unsecured account holders lose $ because someone got a sweet heart deal when there was a higher bidder.
Since Refco, Inc. is now in Chapter 11, and Refco, Inc. owns the regulated futures business, the bankruptcy judge is in charge. The judge will be the final arbiter.
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.