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Jefferies Group, Inc. (JEF), Leucadia National Corp. (LUK): Merger and a Spinoff at the Same Time

As part of the New York-based company’s expected merger with investment banking powerhouse Jefferies Group, Inc. (NYSE:JEF), Leucadia National Corp. (NYSE:LUK) has announced plans to spin off its Crimson Wine division and pay a “spin-off” dividend to its shareholders. The spin-off is expected to close on February 25, 2013. Although the terms of the Jefferies-Leucadia merger have not yet been finalized, it appears likely that the deal will be finalized by the end of the second quarter of 2013. However, legal issues or shareholder concerns may yet complicate or delay the deal.

For now, traders who wish to find short-term value in Leucadia may find it profitable to participate in the Crimson Wine spin-off.

Jefferies Group, Inc. (NYSE:JEF)

About Leucadia, Crimson Wine and Jefferies Group

Leucadia National Corp. (NYSE:LUK) is a conglomerate with operations in a number of agricultural, gaming, service, and medical industries. The company’s agricultural holdings include a vertically-integrated beef processing unit and the soon-to-be-independent Crimson Wine winery operation. Its materials division produces raw lumber and various lumber products for sale to homeowners, building contractors and other customers. Leucadia’s medical products division consists of several trial-phase compounds that treat certain side effects of strokes, clotting events and sickle-cell anemia. The company also owns a casino and Hard Rock Cafe property in Biloxi, Mississippi and engages in several other miscellaneous operations. It employs about 12,000 workers and had an EBITDA of $902.7 million on 2012 revenues of $7.1 billion.

Crimson Wine is Leucadia’s winery division. The unit operates growing and processing operations in the West Coast region of the United States and distributes its products to a modest number of boutique liquor stores and upscale restaurants. As consumer tastes have evolved, the company has also begun to sell its high-value, low-cost wines to supermarket chains and big-box liquor stores within its trade area.

Jefferies Group, Inc. (NYSE:JEF) is an investment banking firm that facilitates the sale, distribution and exchange of securities like stocks, ADRs, ETFs, options, bonds, closed-end funds, and several other types of esoteric investment products. It also manages a diverse portfolio of assets for mutual funds, private investors and other customers. Its asset management group works with convertible bonds and commodities. This division also makes strategic investments in various assets and companies. The Jefferies Group earned $265 million on 2012 revenues of $2.9 billion.

How the Deal Is Structured

Under the terms of the spin-off deal, Leucadia shareholders of record as of February 11, 2013 will receive one share of the newly-issued Crimson Wine stock for every 10 Leucadia shares that they own. Any leftover fractional shares will be distributed to the appropriate shareholders as pro-rated cash payments.

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