Devin Ryan - Sandler O'Neill & Partners, L.P. - Analyst
With our first presentation, we have Stifel
Financial. Stifel has been one of the
biggest beneficiaries of the financial
crisis on our view. The Company successfully
raised $200 million in equity at attractive
prices. It aggressively added talent across
the platform. And they were able to do
acquisitions when many of their peers were
more inward focused with the most recent
acquisition of Thomas Weisel Partners. With
us this morning, we have Ron Kruszewski,
Chairman and CEO. So, with that, I will turn
it over to Ron.
Ron Kruszewski - Stifel Financial Corp. - Chairman,
President & CEO
Good morning. Thank you, Devin. Good morning
to everyone.
...
We have talked about expanding our private
client footprint in the United States. And
then the items in red here is what we
address with our Thomas Weisel merger, which
is, first, to expand our institutional
equity business, domestically and
internationally, to grow investment banking.
We're going to do that as we always had by
approaching acquisition opportunities with
discipline. We like to do accretive
transactions. And then, finally, we look at
focusing on generating assets within our
banks, Stifel Bank & Trust.
Talk about the Stifel and Thomas Weisel
Partners merger. Again, if you look at
Stifel Financial, we are -- many of you know
about us. And I think you also know about
Thomas Weisel. What this was for us was
simply a perfect fit on the capital markets
side. They were a growth-focused investment
bank with virtually no overlap with us. And
so, I will talk a little bit about that in a
moment.
The transaction -- we looked at this truly
as a merger. So, what we did was we proposed
to acquire 100% of them in a straight
stock-per-stock 1.364 Stifel shares for each
Thomas Weisel share, no caps, no collars. At
the deal price that was $7.60 per share,
about $300 million, an aggregate
consideration when you also consider their
units, which is parts of our retention plan.
And I am pleased that Tom is not with me
today.
Actually, I will introduce two of my
partners here, Jim Zemlyak, who is Chief
Financial Officer, and my co head of capital
markets and investment banking, Victor Nesi
is sitting here. Tom will join me as
co-chairman of Stifel. As I've said --
people have asked me why I would do that. My
comment to them that the chairman title has
not made me a nickel. But I think that Tom
and his team will help add to shareholder
value. So I am glad to welcome him as
co-chairman of Stifel.
Importantly, we spent a lot of time before
we announced the merger of getting the
senior management team together. They spent
almost a month and a half agreeing on the
combined management team. And that was all
in place before we announced the deal,
including retention and having all the
people signed up, or they key Weisel people.
We identified 60 people. And I think today
59 of the 60 have signed agreements that not
only commit them to the organization but
commit them for a year. So, we feel pretty
good about that.
We believe that on annualized basis that we
have pre-cost efficiencies of $62 million.
We think that we can do [this]. Importantly,
there's almost no change on the
client-facing business. Most of the cost
savings come from back office
administrative-type of duplication. We have
not assumed any revenue enhancements in this
scale. We believe that this deal -- we're on
track now with most of the approvals. We
believe that this deal will close either
late June or probably July 1st, just from an
accounting perspective. But we're on track
to close this deal either the end of June or
the first couple of days of July.
If you look at it, there was -- it was
interesting the day we announced this deal.
It was the tale of two cities. Many
shareholders felt that we lost our minds and
overpaid in terms of a market premium. And
then, on the other hand, when we had an
opportunity to explain the numbers, I think
people saw that it was a transaction. Bottom
line is this transaction is accretive both
to Stifel's earnings per share and our book
value per share. And it adds tremendous
capabilities to our firm.
One of the things that most people did not
understand in this transaction was the
deferred tax asset that was off the books
for Weisel that we reestablished and
purchased accounting. And, when you look at
that, when you add that back, the price to
book -- about 1.2 times price to book. The
premium, any way you want to look at,
especially considering the strategic fit --
this was a very attractive transaction
certainly from our perspective.
Why this combination made sense for us --
well, I'll come to some of the charts. But
it's a highly complementary banking research
and trading platforms. I'm going to come
back to these slides. I won't talk to them
here. But, when we looked at these
transactions, we looked at potential. We
looked at how we would fit -- and I'll come
back to why this is very complementary. We
think this fast-tracks our investment
banking growth. It would take years,
absolutely, maybe even a decade, to build
the investment banking platform and
primarily in technology and consumer and
health care. That's something that takes
years to do.
We believe that the Weisel core verticals
are ready for rebound. I don't think they
can go down much, as they've been in the
last couple of years. So, when we look at
their business, we think that our market
timing -- certainly, I hope that our market
timing will be good. And then they have an
asset-management business. While it's small,
it's complementary to our existing
management team.
We think on a combined basis we'll have a $2
billion combined market cap, $1.5 billion to
$1.6 billion in combined revenue, over $1
billion in equity value -- I'm sorry --
equity capital supporting a $3 billion
balance sheet. So, we're a very
well-capitalized coast-to-coast presence.
We'll have -- we will be the number one
provider of US domestic research in the
country. Almost 1,200 companies will be
under coverage. And then we'll -- this will
be very complementary to our private wealth
management business.
So, when we looked at this transaction --
and this slide really will tell you how we
looked at it. I had looked at a number of
firms that would be complementary to our
investment banking. And, in this case, this
slide will show that, over a five-year
period, Stifel had done 321 on-the-cover
transactions as lead or co-manager. And
Weisel had done 306, and then on the M&A
side 108 transactions. And Weisel had done
88. And this what you'd expect. Our
investment banking franchises are about the
same size. And you would see this.
But the telling slide is the next one. And
what you look at -- what this will show you
is in our Stifel core competencies, where
we've done most of our transactions --
financial institutions, real estate, US
energy and national resources, aerospace and
defense, industrials, transportation and
education -- we have done over that
five-year period 280 transactions. Weisel in
those same verticals did 32. And,
importantly, we met on the cover one time,
meaning that we were both on the cover of
those combined 311 transactions one time.
2
And their core competencies of technology,
Canadian energy, health care and consumer --
they had done 274 transactions. We had done
41. As, as you can see, we met three times.
So, over a five-year period, out of 623
transactions, we actually were on the cover
a grand total of four times.
And this slide says it all as to why this
deal makes very good strategic sense. But,
importantly, it also helps the integration
tremendously, because we have virtually no
overlap in banking and research. The people
have been folded right into it, because in
their core competencies we just simply were
not playing in our core competencies. They
were not playing. So, we were very
significant competitors, but not playing in
the same sandbox.
The same is true of M&A. In fact, I've been
looking on M&A. You'll see the same numbers.
While it looks like we did more transactions
in their core competencies, it was our
middle market M&A group, former Lehman
group, doing more smaller transactions. I
have yet to find a transaction where we were
on the -- either side of the transaction
where we were representing, and they were
representing a buyer or vice-versa. So,
again, what these two slides will show you
is a tremendous complementary fit.
We -- as I said, it creates the largest US
equity research. But, just as important, our
research I think has shown its quality and
our ability to add alpha to our clients, as
evidenced by the fact that I think we're the
first non-New-York-based firm to be ranked
number one in the Wall Street Journal's Best
of the Street. And we were number globally
in the StarMine. And that follows our
StarMine rankings in 2008 where were number
one, both in stock-picking and in earnings
accuracy.
So, our research, which is our core
franchise at Stifel, is enhanced by the
Weisel transaction. It enhances what we
believe is a top tier sales and trading.
I've had a lot of questions as to how do you
combine two organizations -- how do you
combine the leadership? It's really pretty
easy when most of our management is
producing. So, our co-heads of trading
actually cover accounts. It's been a very
easy transaction, because, again, we deal in
different verticals.
As I've said, the Weisel deal, which was
primarily in its infancy -- they have some
-- they have private equity. They have
global growth partners, about $1 billion
growth-oriented fund to fund, health care
venture partners, a number of things that
fits very well with what we're doing on the
asset management side. And they have a very
small private client group in San Francisco.
So, when you look at this from a shareholder
perspective, it's a fantastic transaction on
paper. The risk, of course, will reside in
integration and execution of our strategy.
We think at Stifel we certainly have proven
our ability through Legg Mason and Ryan
Beck, UBS and Butler Wick -- are four recent
transactions where virtually all of the key
people not only stayed, but they're with us
today. So, we've had very little attrition
over our transactions. And I'm hopeful that
the Weisel transaction will prove to be the
same.
So, when you look at Stifel today -- on a
combined basis, I'll look at it. If you look
-- if you combine 2009 revenues, we'd be
about $1.3 billion. If you annualize our
first quarter revenues, a little more
telling, because we've done some other
deals, we're at about $1.5 billion. And,
importantly, this mix between global wealth
management and capital markets, or what
we're going to call our institutional
business, is about 50-50. And, as you can
see, we have a coast-to-coast presence, both
in the global wealth management and
certainly on the capital market side.
...
3
Our institutional group -- this will just
give some sense of the combined basis,
again. On a combined basis, the Weisel
business, back when the markets were good,
was doing nearly $400 million with Westwind.
And we look at what we have combined. If you
take this transaction, we execute it well,
and we get a good market. I think we have a
lot of potential on the upside.
...
Finally, the last thing I'll talk about is
that many firms have been modifying their
unit plans. Weisel had done it. I've talked
about us also doing it. The long and the
short of it is, is that, if we would
accelerate by making our units over our
growth be retirement eligible from an
accounting perspective, we'll take a
non-cash charge.
It would impact -- on a pro forma basis; it
would impact our book value by about 7%. But
it would increase our earnings per share
going forward by about 26% -- so, in 2010
and '11 -- 2010 and a full-year impact. So,
that's something that we're looking at. We
have not yet decided to do it. But, if we do
it, we're going to do it in conjunction with
the Weisel transaction and do it in Q2. But
we have not yet taken a vote to do that.
...
Devin Ryan - Sandler O'Neill & Partners, L.P. - Analyst
I think we're out of time here. So, Ron,
thank you very much.
Ron Kruszewski - Stifel Financial Corp. - Chairman,
President & CEO
Thank you very much. Thank you.
4
Forward-Looking Statements:
Statements in this communication that relate
to Stifel Financial Corp., as well as
Stifel, Nicolaus and Company, Inc. and its
other subsidiaries (collectively, "Stifel"
or the "Company") and Thomas Weisel Partners
Group, Inc. ("Thomas Weisel Partners")
future plans, objectives, expectations,
performance, events and the like may
constitute "forward-looking statements"
within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A
of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange
Act of 1934, as amended. Future events,
risks and uncertainties, individually or in
the aggregate, could cause our actual
results to differ materially from those
expressed or implied in these
forward-looking statements. Neither Stifel
nor Thomas Weisel Partners undertakes any
obligation to update any forward-looking
statements to reflect events that occur or
circumstances that exist after the date on
which they were made.
The material factors and assumptions that
could cause actual results to differ
materially from current expectations
include, without limitation, the following:
(1) the inability to close the merger in a
timely manner; (2) the inability to complete
the merger due to the failure to obtain
stockholder approval and adoption of the
merger agreement and approval of the merger
or the failure to satisfy other conditions
to completion of the merger, including
required regulatory and court approvals; (3)
the failure of the transaction to close for
any other reason; (4) the possibility that
the integration of Thomas Weisel Partners'
business and operations with those of Stifel
may be more difficult and/or take longer
than anticipated, may be more costly than
anticipated and may have unanticipated
adverse results relating to Thomas Weisel
Partners' or Stifel's existing businesses;
(5) the challenges of integrating and
retaining key employees; (6) the effect of
the announcement of the transaction on
Stifel's, Thomas Weisel Partners' or the
combined company's respective business
relationships, operating results and
business generally; (7) the possibility that
the anticipated synergies and cost savings
of the merger will not be realized, or will
not be realized within the expected time
period; (8) the possibility that the merger
may be more expensive to complete than
anticipated, including as a result of
unexpected factors or events; (9) the
challenges of maintaining and increasing
revenues on a combined company basis
following the close of the merger; (10)
diversion of management's attention from
ongoing business concerns; (11) general
competitive, economic, political and market
conditions and fluctuations; (12) actions
taken or conditions imposed by the United
States and foreign governments; (13) adverse
outcomes of pending or threatened litigation
or government investigations; and (14) the
impact of competition in the industries and
in the specific markets in which Stifel and
Thomas Weisel Partners, respectively,
operate.
Additional factors that may cause results to
differ materially from those described in
the forward-looking statements are set forth
in the Annual Report on Form 10-K of Stifel
for the year ended December 31, 2009, which
was filed with the Securities and Exchange
Commission ("SEC") on February 26, 2010,
under the heading "Item 1A-Risk Factors," in
the Annual Report on Form 10-K of Thomas
Weisel Partners for the year ended December
31, 2009, which was filed with the SEC on
March 12, 2010, under the heading "Item
1A-Risk Factors," in the Registration
Statement on Form S-4/A filed by Stifel on
May 20, 2010, under the section titled "Risk
Factors," and in subsequent reports on Forms
10-Q and 8-K and other filings made with the
SEC by each of Thomas Weisel Partners and
Stifel.
5
Important Merger Information and
Additional Information:
This communication does not constitute an
offer to sell or the solicitation of an
offer to buy any securities or a
solicitation of any vote or approval. In
connection with the proposed merger, Stifel
has filed with the SEC, and the SEC has
declared effective, a registration statement
on Form S-4 that includes a proxy statement
of Thomas Weisel Partners and also
constitutes a prospectus of Stifel. The
proxy statement/prospectus of Stifel and
Thomas Weisel Partners has been mailed to
the shareholders of Thomas Weisel Partners.
Stifel and Thomas Weisel Partners
shareholders are urged to read the
registration statement and any other
relevant documents filed with the SEC,
including the proxy statement/prospectus
that is part of the registration statement,
because they contain important information
about Stifel, Thomas Weisel Partners and the
proposed transaction.
You may obtain free
copies of the registration statement and
proxy statement/prospectus as well as other
filed documents containing information about
Stifel and Thomas Weisel Partners, without
charge, at the SEC's website (www.sec.gov).
Free copies of Stifel's SEC filings are also
available on Stifel's website (www.stifel.com),
and free copies of Thomas Weisel Partners'
SEC filings are available on Thomas Weisel
Partners' website (www.tweisel.com). Free
copies of Stifel's filings also may be
obtained by directing a request to Stifel's
Investor Relations by phone to (314)
342-2000 or in writing to Stifel Financial
Corp., Attention: Investor Relations, 501
North Broadway, St. Louis, Missouri 63102.
Free copies of Thomas Weisel Partners'
filings also may be obtained by directing a
request to Thomas Weisel Partners' Investor
Relations by phone to 415-364-2500, in
writing to Thomas Weisel Partners Group,
Inc., Attention: Investor Relations, One
Montgomery Street, San Francisco, CA 94104,
or by email to investorrelations@tweisel.com
.
Stifel, Thomas Weisel Partners and their
respective directors and executive officers
may be deemed, under SEC rules, to be
participants in the solicitation of proxies
from the shareholders of Thomas Weisel
Partners with respect to the proposed
transaction.
Information regarding Thomas Weisel Partners' directors and executive
officers is set forth in the proxy
statement/prospectus contained in the
Registration Statement on Form S-4/A filed
by Stifel on May 20, 2010. Information
regarding Stifel's directors and executive
officers is also available in Stifel's
definitive proxy statement for its 2010
Annual Meeting of Shareholders filed with
the SEC on February 26, 2010.
6