That's not easy to model given the circumstances, but if you first look at the fact that the client losses were $225 and they stated they were going to try to collect from the Institutional, HF, and HNW clients who held 60% (I misstated earlier) that equates to $135m. If you figure they collect 70 cents on that dollar (these are sophisticated clients who have the money) that comes out to about $95m. Then from ops, you can't even look at prior cash flow statements because their capex ex plans, capital mgmt strategies, etc are going to be very different. So if you just look at just Net Income plus depreciation that went from $45m in 2012, to $70m, to $80m. If you conservatively mark that to average $70m annually over 3 years, that's $210m. There's your $300m. I know that's over simplified but the gist is valid.
They had the cash to cover the losses, but not to caover the losses and maintain regulatory required minimum capital. Since you are talking about liqidation value though, it can be assumed that a buyer will have more than enough to meet the additional capital required to account for their acquisition of FXCM's business. Therefore, the cash has value in the calculation just by the fact that it is there to offset the liabilities. That is before you account for any additional cash flow between now and then.
Here is the excerpt from the 10-K:
"• Amounts due under Leucadia term loan, including fees (100% Leucadia, 0% FXCM)
• Next $350 million (50% Leucadia, 50% FXCM)
• Next amount equal to two times the balance outstanding on the term loan and fees as of April 16, 2015, such amount not to be less than $500 million or more than $680 million (90% Leucadia, 10% FXCM)
• All aggregate amounts thereafter (60% Leucadia, 40% FXCM)"
That means LUK gets the first $300m. Then they split the next $350m. Then LUK gets 90% of the next $500m. Then it's 60/40 to LUK thereafter. So your assumption is suggesting that the $175m FXCM gets in the second tranch above goes to Bondholders and Executive payouts. You are failing, in that, to recognize the $338m in cash they were carrying at 12/31. You are also failing to see that some amount of proceeds that will be used to pay down the loan is not in today's enterprise value - whatever they are able to collect from the institutional clients margin accounts from the CHF disaster. Those holders were the 10% they did not forgive and acounted for over 70% of the losses. All of they multiplied by the Cap rate your assumptions above use would bring the amount needed to support today's share price down considerably.
I know there has been some questionable behavior but look at the business... The following is a comparison with 3 large peers on P/E, year over year revenue growth, and final M-Cap as it equates to Equity + a multiple of operating earnings...
P/E Rev Mcap
RHI 26.09 10.60% Eq + 12.9 x Op Inc
KFY 19.39 17.20% Eq + 9.8 x Op Inc
MAN 15.78 2.50% Eq + 5.0 x Op Inc
CTP 6.13 32.43% Eq + 0.8 x Op Inc
This has to pop...and soon. Shares sufffered over the past 6 mos. due to negative PR about lude behavior. Management changes have happened as a result. Unsolicited bid from a competitor comes in a month ago at $7.00 a share. Shares go up to between $6.50 and $7.50 for a while. Shares trail back down on news of some defections. Major (and reputable) shareholder complains publicly they do to the underlying strength in the business, they should be worth $13-$15 a share and have received a bid for $7 and suggests they formally explore all options to effectuate bid competition. They announce they have set up a special committee of the board to examine all options. They announce they are delaying their 10-K 2 weeks while the wrap up a new credit agreement. Stock drops from around $5 a share to under $4 a share given the natural fear and speculation that comes with a delayed filing. They issue the 10K last night and while 4th q net income is not great, revenue trends are as is full year net income. They also give detail on the trends in 1Q while remain very strong. P/E is now just over 6x in an industry that more commonly trades around 20x. There is no where to go but way up in any number of scenarios.
Sentiment: Strong Buy
Robb, With all due respect, what are you talking about. First of all, I will not be "giving away" and asset. There would obviously be a value attached. The point is that Jeffries is a subsidiary of Leucadia so whatever Jefferies pays for it will be going right back to Leucadia to pay off the loan. Second, they do not need shareholder approval to divest of assets. The 50.1% ownership in Faros was bought by FXCM in 2013 for $5m - this is not a major asset. What we are talking about is the fact that they had a lifeline loan thrown to them to save the company with very onerous terms. If a part of this particular asset's sale is a relaxation of those terms, that is a very good thing for shareholders. So what is the "classic manipulation" exactly?
I believe you may be correct. Faros would not garner a big price tag, but is valuable to Jeffries (LUK sub). I believe they are pretty far down the road of discussions with interested buyers in Lucid - which would be the big dollar piece and could help them pay off the majority of the remainder. The original terms were to ensure LUK would get a nice return even if the situation got more dire and they could not pay back the loan. I believed at the time that they pre-agreed to revise the terms if the repayment was quick and the business was clearly surviving.
I am hoping for some good news and a major pop friday, but I don't think it will come from a short squeeze. At Nasdaq's last update the shorts were out. Only 0.12% of float.
Sentiment: Strong Buy