On Nov. 11, Leucadia National Corp., a conglomerate that has been trying to develop coal gasification projects in Chicago and southern Indiana, and an affiliate entered into an agreement and plan of merger with Jefferies Group Inc.
Under this proposed deal, Jefferies would become a wholly-owned subsidiary of Leucadia. The companies said in documents filed Nov. 13 with the SEC that Jefferies will continue its over 50-year focus in investment banking and the capital markets, and continue to maintain a highly liquid, client-focused balance sheet. “Jefferies has grown rapidly over the past two decades and is well-positioned to continue this growth with Leucadia’s support,” said one document. “As a subsidiary of Leucadia, Jefferies will have greater balance sheet resilience and flexibility to guard against, and take advantage of, market dislocations and opportunities.”
Jefferies Group (NYSE: JEF) is a global investment banking firm focused on serving clients for over 50 years. Leucadia (NYSE: LUK) is a diversified holding company engaged through its consolidated subsidiaries in a variety of businesses, including beef processing, manufacturing, gaming entertainment, real estate activities, medical product development and winery operations. Leucadia also has a significant equity interest in Jefferies Group and owns equity interests in operating businesses including a commercial mortgage origination and servicing business.
Leucadia will continue to operate in its current form, except that the merger agreement contemplates that Leucadia’s Crimson Wine Group will be spun out in a distribution that is intended to be tax-free to current Leucadia shareholders prior to the completion of the merger. No mention is made of the coal gasification projects. Jefferies, which will be the largest business of Leucadia, will continue to operate as a full-service global investment banking firm in its current form.
Leucadia’s Indiana Gasification LLC unit is trying to develop a coal gasification project on the Ohio River near Rockport, Ind. In November 2011, the Indiana Utility Regulatory Commission approved a deal for the Indiana Finance Authority (IFA) to buy most of the substitute natural gas (SNG) from the project and sell it into the pipeline system. But various parties, including natural gas distribution units of Vectren (NYSE: VVC), have lashed back, saying the SNG will be too expensive over time and will cost gas users too much money.
In August, Illinois Gov. Pat Quinn vetoed SB 3766, which supported development of Leucadia’s Chicago Clean Energy coal gasification project on Chicago’s South Side. Leucadia has indicated that it is looking for ways to work around that veto and keep the project viable. SB 3766 would have required Ameren and Nicor to sign 30-year contracts to buy natural gas from Leucadia’s plant, which would convert coal into gas. Exelon (NYSE: EXC) has been a major opponent of that project.