Stifel To Buy KBW For Cash And Stock

November 05, 2012

Stifel plans to buy KBW, which produces indexes used in a number of ETFs.

Stifel Financial Corp. is buying KBW Inc. in a cash and stock transaction valued at $575 million that will create what the two companies called a middle-market investment bank focused on the financial services industry.

The combined company will provide investment banking, sales and trading, and research to financial services companies through KBW’s broker-dealer subsidiary, which will continue to operate as an independent subsidiary of St. Louis-based Stifel, the companies said today in a joint press release. Stifel sells securities and financial advice mainly to individual investors.

Stifel appears to be preparing for a pickup in mergers and acquisitions in the middle-market segment at precisely the time when many  Wall Street firms are backing away from investment banking, according to a Reuters report that quoted a number of securities analysts.

“Our shared culture and platforms are highly complementary, and this combination expands our capabilities at a time when we believe the financial services sector is poised to benefit from improving fundamentals,” Ronald Kruszewski, Stifel’s chairman, president and chief executive officer, said in the prepared statement.

The acquisition, which values KBW at $17.50 a share, is also peripherally relevant to the indexing and ETF industries to the extent that KBW also has an indexing business, and those benchmarks are used in a number of funds.

Two funds in particular from Invesco PowerShares are noteworthy in terms of their assets under management: the $165.7 million PowerShares KBW Bank Portfolio (NYSEArca: KBWB) and the $119.5 PowerShares KBW High Dividend Yield Financial Portfolio (NYSEArca: KBWD).

Terms Of The Deal

Under terms of the acquisition, KBW shareholders will receive $10 per share in cash and $7.50 per share in Stifel’s common stock.

The companies said about $250 million in excess capital on KBW’s balance sheet should be immediately available to Stifel upon closing.

The acquisition is expected to boost Stifel's per share earnings by about 5 to 7 percent, after cost savings, according to the Reuters report that cited comments by officials from both companies during a conference call with analysts today.


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