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Fed Okays RJF-Morgan Keegan Deal

Zacks Equity Research

On Tuesday, the deal between Raymond James Financial Inc. (RJF) and Morgan Keegan & Company Inc. received approval from the U.S. Department of Justice. The deal is anticipated to be closed on or around April 2, 2012.

In January 2012, RJF agreed to purchase Morgan Keegan, securities brokerage armof Regions Financial Corp. (RF), for $930 million. Under the terms of the deal, Regions would also receive a dividend of $250 million from Morgan Keegan before closing, thereby projecting $1.18 billion as the net amount of the proceeds.

However, Morgan Asset Management and Regions Morgan Keegan Trust were retained as part of Regions’ Wealth Management organization.

Last week, RJF planned to sell 12.1 million shares of its common stock in a public offering. The sale is expected to bring in $358.7 million as net proceeds. The proceeds from the sale are anticipated to be used for making the part payment of $930 million, which is the purchasing amount of Morgan Keegan & Co.

Following the divestiture, Regions aims to concentrate on its core banking business, while providing products and services to its clients in a better way. Moreover, the company will have strong revenue opportunities through a business relationship with Raymond James.

The two firms are anticipated to start several mutually beneficial business relationships, including deposits, loan referrals and processing, which would surely benefit the shareholders in the long run.

John Carson, CEO of Morgan Keegan, aims to continue offering his company’s exceptional services to individual and institutional clients after being part of Raymond James. Additionally, Regions and Raymond James ensured providing same level of service to Morgan Keegan’s customers with Regions’ banking relationships.

On the other hand, the agreement depicts Florida-based RJF’s expansion strategies to move ahead with smaller acquisitions. Though the firm emphasizes on organic growth, great opportunity at the right time along with the correct price are subjects to be taken into consideration. For RJF, this is the most important agreement it has ever entered into, which in turn would expand its brokerage and capital markets business.

RJF expects the purchase not to benefit the 2012 earnings. However, the company expects its profits to increase by 2–3% in the following years. Furthermore, Morgan Keegan’s current headquarters at Memphis will be the headquarters of Raymond James’ Fixed Income and Public Finance businesses. In addition, RJF will continue to control a regional support center in Memphis.

RJF currently retain a Zacks #2 Rank, which translates into a short-term Buy rating.

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