On Monday, Regions Financial Corp. (RF) finally completed the sale of its securities brokerage arm, Morgan Keegan & Company, Inc. to Raymond James Financial Inc. (RJF). The purchase price amounted to about $1.2 billion.
Previously, as per the terms of the deal, with the purchase price of $930 million, Regions was supposed to receive a dividend of $250 million from Morgan Keegan. Instead, Raymond James increased the purchase price by approximately the same amount of dividend and closed the deal for higher than the agreed amount.
However, Morgan Asset Management and Regions Morgan Keegan Trust are retained as part of Regions’ Wealth Management organization.
It is expected that Regions will use the proceeds of the deal along with $900 million generated from common stock offering in March in repaying its $3.5 billion dues related to the Troubled Asset Relief Program (:TARP). The repayment of TARP dues awaits approval of the Federal Reserve and Treasury Department.
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 the 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 benefit the shareholders in the long run.
John Carson, CEO of Morgan Keegan, aims to continually offer its exceptional services to individual and institutional clients after becoming a part of Raymond James. Additionally, Regions and Raymond James ensure providing same level of service to Morgan Keegan’s customers with Regions’ banking relationships.
After the completion of the deal, Raymond James laid off 218 positions, representing less than 2% of about 13,000 workers of the combined firms. Out of the total jobs cut, 143 were at Morgan Keegan and 75 were removed from Raymond James. The equity capital markets and fixed-income groups specially witnessed a reduction in number of staff.
The agreement depicts Florida-based Raymond James’ expansion strategies to move ahead with smaller acquisitions. Though the firm emphasizes on organic growth, great opportunity at right time along with correct price are subjects to be addressed. For Raymond James, it is the most important agreement it has ever entered into, which in turn would expand its brokerage and capital markets business.
Regions currently retain a Zacks #2 Rank, which translates into a short-term Buy rating. However, considering the fundamentals, we maintain a long term Neutral rating on the stock.
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