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February 01, 2012 at 07:00 PM
St. Petersburg, Fla.-based Raymond James Financial said on Jan. 11 that it would buy Memphis-based Morgan Keegan from Regions Financial in a $930-million stock transaction. The deal, expected to close by March 30, could boost Raymond James’ advisor force by some 1,000 reps to roughly 6,000 worldwide.
“While our preference is generally organic growth, we have used strategic mergers to grow throughout our history when the timing and pricing are right and, most importantly, when there is a strong cultural fit and clear path for integration,” said Raymond James CEO Paul C. Reilly in a press release. “Given the associated assets and scale, this acquisition creates significant future earnings power.”
The final purchase price is subject “to adjustment based on the closing tangible equity of Morgan Keegan and retention of Morgan Keegan associates in the immediate post-closing period,” Regions said in a press release.
Morgan Keegan had net income of $95 million in 2007, $64 million in 2008 and $43 million in 2009; it generated a loss of $71 million in 2010, when a $125 million settlement charge was taken. In the first three quarters of 2011, Morgan Keegan produced $63 million of profits, including a $27 million tax benefit tied to the settlement charges.
“Raymond James was one of the most natural buyers of Morgan Keegan,” said Chip Roame, head of Tiburon Strategic Advisors, in an interview. “The reason being is that Morgan Keegan is a Southeast captive-broker retail brokerage business plus a capital-markets business. Few buyers would have wanted both businesses. Picking up 1,000 advisors is a big deal to Raymond James; there are so few of these acquisition opportunities remaining.”
As part of the merger, Morgan Keegan CEO John Carson will join Raymond James as president and will oversee its fixed income and public finance operations, which will be based in Memphis. “We are excited to be joining Raymond James. I see it as a firm that provides the resources of a major Wall Street firm while maintaining the client-first culture of a regional,” Carson said in a statement.
The news of Morgan Keegan’s fate comes after more than six months of speculation which focused on its likely purchase by a private-equity firm or partnership. In June, Regions Financial agreed to pay about $200 million to settle fraud charges related to Morgan Keegan and Morgan Asset Management’s sales of mutual and closed-end funds tied to subprime mortgage-backed securities in 2006 and 2007. That same month, Regions hired Goldman Sachs to help it find a buyer for Morgan Keegan.
As part of the deal, Morgan Keegan is set to pay Regions a dividend of $250 million before closing, pending regulatory approval, resulting in total proceeds of $1.18 billion to Regions, subject to certain adjustments, the Birmingham, Ala.-based company says. Morgan Asset Management and Regions Morgan Keegan Trust are not included in the sale.
Regions says it expects to realize “revenue opportunities … through a strong partnership with Raymond James for deposits, loan referrals and processing relationships.” It also expects to receive “the benefit of previously established reserves by Regions at Morgan Keegan.”
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