SMBC to increase equity ownership in Jefferies
Jefferies Financial Group, Inc. (NYSE:JEF) and Sumitomo Mitsui Financial Group, Inc. (NYSE:SMFG), Sumitomo Mitsui Banking Corporation, SMBC Nikko Securities Inc., and SMBC Nikko Securities America Inc announced today that they have expanded their strategic alliance to collaborate on future corporate and investment banking business opportunities, as well as in equity sales, trading, and research.
Over the past year, the Jefferies and SMBC Group’s strategic alliance has advanced the corporate and investment banking businesses of both firms, with a focus on cross-border M&A, healthcare and leveraged finance.
This significant expansion of the alliance will broaden the scope of the collaboration in M&A advisory services and increase the collaboration across the firms’ equities and debt capital markets businesses. The expanded alliance also includes joint coverage of designated investment grade clients that have banking relationships with SMBC and will now have dedicated Jefferies investment banking coverage.
SMBC Group will be responsible for credit products and debt capital markets, while Jefferies will be responsible for M&A and equity capital markets.
In 2021, SMBC provided $2.25 billion in financing to Jefferies and purchased approximately 4.5% of the issued and outstanding common shares of Jefferies. SMBC now intends, subject to any applicable regulatory approvals and the receipt of approval of Jefferies’ shareholders for the authorization of a new class of non-voting common shares, to increase its investment in Jefferies through direct and indirect open-market purchases of Jefferies’ common shares that will be exchanged for non-voting preferred shares that will be mandatorily convertible into non-voting common shares.
In doing so, SMBC plans to raise its economic ownership to up to 15% on an as converted and fully diluted basis. SMBC’s $2.25 billion financing in 2021 and investments will, at current market prices, result in a financial commitment to Jefferies of approximately $3.4 billion. Jefferies expects to seek approval of the non-voting common shares at a special shareholders’ meeting in July 2023. Jefferies’ non-voting mandatorily convertible preferred shares and non-voting common shares are entitled to receive the same dividends and distributions as Jefferies’ voting common shares.
Upon SMBC ’s investment reaching or passing 10% of the economic ownership of Jefferies on an as converted and fully diluted basis, SMBC will be entitled to designate a new member to Jefferies’ Board of Directors. This process will be subject to Jefferies’ customary onboarding procedures to determine the designee’s eligibility and qualifications to serve as a director.
Citi and SMBC Nikko served as financial advisors and Skadden, Arps, Slate, Meagher & Flom LLP served as legal advisor to SMBC Group. Jefferies LLC served as financial advisor and Cravath, Swaine & Moore LLP and Davis Polk & Wardwell LLP served as legal advisors to Jefferies.