Patrick Davitt - Bank of America Merrill
Lynch - Analyst
It's my pleasure to welcome Stifel Financial
Chairman and CEO, Ron Kruszewski, as well as
Thomas Weisel, Chairman and CEO of Thomas
Weisel, as the opening financials presenters
in our 2010 Small and Mid Cap Conference.
Stifel has proven to be among the most
resilient broker/dealers through the recent
financial crisis, has a lack of toxic and
credit exposure, and less volatile business
mix, has allowed it to be proactive in
building out its institutional businesses,
while also completing a number of successful
acquisitions in the private client space to
drive significant growth there, despite
subdued retail investor activity. Also, the
recently announced Thomas Weisel acquisition
looks to significantly expand the breadth of
the firms institutional business. We look
forward to hearing from Ron as to how the
merger is progressing, and what growth
opportunities they see as the firm navigates
through what continues to be a volatile and
uncertain market. With that, I'll turn the
podium over to Ron.
Ron Kruszewski - Stifel Financial Corp. - Chairman,
President & CEO
Good morning. Thank you, Patrick. I'd like
to see if we can get started. Our obligatory
forward-looking statements, and furthermore,
I do want to just point out that we are in a
proxy solicitation and this slide will tell
you where to find information as it relates
to our Form S-4 that we filed a couple of
weeks ago.
...
The items in red are what we addressed with
our merger with Thomas Weisel Partners. As
Patrick said, Thom's with me today. I'm
thrilled to have Thom as a partner, and I'll
talk about that. Unfortunately, the lawyers
advise us that we are still separate
companies, and therefore, we will present
separately until we close the merger, which
by the way, I believe will occur at the end
of this month.
But, we talked about we needed to expand our
institutional equity business domestically
and international. We wanted to grow our
investment bank. Our investment banking
business was undersized to the size of the
firm, especially the size of our research
department, and we believe that that
transaction also was done with some
discipline in terms of our, not only
integration, but financial discipline. We're
going to continue to focus on asset
generation within the bank, and we will
build out and we're looking at opportunities
on institutional asset management. So, our
growth strategy really hasn't changed, we've
just been executing on it.
Talking about the merger, we've been going
around a lot talking about this. I will look
forward to when we quit talking about it and
start executing on it, but it is a perfect
marriage, as you'll see on paper, and I'll
talk a little bit about the integration.
While it's a very compelling transaction,
our merger on paper, it's proving to be as
compelling when we're dealing with the
people involved in the integration, and I
can report to you today that as integrations
go, this one's going as well as any that I
have been involved with over the last number
of years.
You know a lot about Stifel, and I'll talk
about the combined firm, but Thomas Weisel
Partners is a global, growth-focused
investment bank, about 450 associates, four
countries, a very significant presence on
the investment banking, primarily tech,
media, telecommunications, healthcare, the
Canadian mining and energy, the market
leader in venture-backed IPOs, a strong,
certainly compared to Stifel, a strong
book-lead managed mix of business, and a
very significant M&A in their verticals.
Research highly complementary with ours.
Institutional sales and trading is also
complementary. They have a small wealth
management business that fits perfectly with
what we're doing, and a budding asset
management business of fund of funds and
they've seated some asset management
business that we're very excited about, all
of which fits very nicely with what we're
doing at Stifel.
The transaction, I've talked a lot, first of
all we will acquire 100% of Thom's stock in
a tax-free exchange. We're doing it on a
stock-for-stock basis. The exchange ratio is
0.1364. A lot of investors have asked me why
we did not use cash, since we had raised
cash to do the deal. This transaction,
because of the high inside ownership of
Weisel, we wanted the associates to have
equity stake in the company, so we did it
100%, but as I've said, and I'll continue to
say, that does not prevent us from
introducing cash to the transaction through
open market purchases, which we intend to
do, and in fact, we have been doing. We
can't do it today because we're in a proxy
solicitation, but we will manage our capital
structure to optimize our capital structure.
This transaction has no caps or collars. At
the transaction date it was $7.60 per share,
a little over $300 million in aggregate
consideration.
Thom will join me as co-Chairman of Stifel,
and we have spent a tremendous amount of
time, before we announced this transaction,
with putting our senior leaders together and
getting them in a room and we had the
integration plan really done and was
something that we were able to announce, on
the same day that we announced this deal, we
were out to the people.
So we've looked at, on the synergy side, we
believe that there's pre-tax cost
efficiencies of approximately $60 million.
It's about 5% of the combined expenses.
Importantly, none of the cost efficiencies
come from our client-facing businesses.
Almost all of the cost efficiencies are in
duplicate rent, back office, but the
non-client-facing businesses, and we think
that as we've scrubbed these numbers, we're
confident on those cost synergies. Again,
very little client-facing changes.
What needs to be done? Well, we simply need
to get, at this point, we need shareholder
approval, a couple of regulatory approvals
that we think are perfunctory, and this
transaction will either close right at the
end of this quarter or the beginning of next
quarter, but it will be either the last few
days of June or the first few days of July,
and then we will be off and running as a
combined company.
If you look at the financials, again, two
things that when we announced the deal, it
was a nice premium, over 70%, for Thom's
shareholders. On the other side of the
ledger, on an adjusted book value, primarily
deferred tax asset that we added back, it
was an attractive price-to-book multiple. At
the end of the day, this transaction is
compelling for us because it's accretive to
book value and it's accretive to our
earnings per share, and I believe it's
accretive to our growth rate. So, you take
all of those things together, this
transaction is very compelling.
We think this makes sense primarily because
it is highly, highly complementary in terms
of investment banking and research, first
and foremost, and complementary on sales and
trading, and I'll talk about a couple of
charts about why we, when we first looked at
this and when Thom and I first got together,
why we knew this was something we had to
look at doing. This transaction fast-tracks
our investment banking growth. I believe it
would have taken us years, if not a decade
or maybe even more than a decade, to
duplicate not only the relationships and all
that Thom's, and not only at Thomas Weisel
Partners, but going back years, Montgomery
Securities, for the relationships that they
have in the investment banking and in
sectors that we have no, really no presence
in. This transaction is very accretive. It
complements our existing business plan
platform. The core verticals that tech and
media and telecom, healthcare, appear, they
have appeared poised for a rebound. Actually
appeared poised for a little while. I
thought they were more poised a month ago
than I feel like they are today. This market
is a bunch of starts and stops, but the fact
remains that there's a lot of activity,
there is a lot of water behind the dam of
the uncertainty in the market that needs to
do to finance a lot of companies. There's a
lot of companies within the venture
community that need to get out of those
funds; a lot of business to be done. We need
the market to cooperate.
2
Again, there's the existing asset management
complements and importantly, from the
integration perspective, the senior
management teams have done a very good job.
There is such a strong cultural set. Most of
our senior people are client-facing,
producing individuals at the top of these
organization charts, and they'll continue to
do that. So our co-heads of trading actually
trade on the desk, with our banking
leadership are calling investment bankers.
So combining these people have been
combining people that really are on the road
all the time. So it's really been a very
exciting integration.
Looking at this, we believe that we will
build the premier, full-service,
middle-market, growth-focused investment
bank. We think that our combined market cap
at the time the deal's done would be $2
billion-plus, $1.5 to $1.6 billion in
revenues, well capitalized, so $1 billion in
equity capital, coast-to-coast presence, not
only in global wealth management, in the
institutional business. We will and we are
the number one provider of U.S. equity
research in terms of companies covered. I'll
come back to that in a little bit. We'll
cover half of the S&P 500 and be the number
one provider of small cap research. We have
an excellent research platform and one
that's been recognized, and I'll come back
and talk about that.
On the international side, we have been in
Europe and Thom had a beginning effort in
China. Not anything that we're going to go
crazy on, but something that we can, again,
believe that we can leverage what we've been
doing in the U.S.
This is a chart that simply says it all, and
that is, when we sat down and looked at this
transaction, we looked at our clients that
we had served on the capital raising side,
and over a five-year period, our combined
companies had done 623 managed and
co-managed and lead-managed offerings over
that period; 321 by Stifel and 306 deals by
Thom's firm. And the same with M&A, but I'll
focus on the capital raising side. So, 623
transactions, the reason that you really
cannot usually merge institutional firms is
that when you look at that, when you peel
back the onion and look at those
transactions, what you'll normally find is
that you are on the same transactions, and
then you'll sit there and say, well, okay,
we're on the same transaction and I had 20%
economics and you had 20% economics, so
we'll have 40%. We all know it doesn't work
that way. If you're on the same
transactions, it's not complementary, it's
duplicative. So when we looked at this we
said, well, how would we look over 623
transactions? And this slide I think says it
all. Because what Stifel has is a core
competency really in value-related
industries, primarily FIG, financial
institutions, real estate, U.S. energy and
natural resources, aerospace, defense, and
government services, industrials,
transportation, and education, and of those,
we had done, for that five-year period, we
had done 280 transactions, where we'd been
on the cover as either lead or co-manager,
and Thomas Weisel Partners did 32
transactions. So we had done, as you can
see, whatever that is, almost whatever the
math is, seven or eight times, but we only
met on the cover one time.
In Thom's core competencies, tech, media &
telecommunications, Canadian energy,
healthcare, and consumer, he had done 274
transactions, we had done 41, but we met on
the cover three times. So, of the 623
transactions, we had four overlapping
transactions. That's why this integration is
going so well, because as we put the firms
together, we put the investment bankers
together, we'll say go out and see your
clients, they're not going and seeing the
same clients. They're going and seeing
unique clients, that combined make, in this
case, of 623 offerings, some duplicate of
four covers.
Same thing on the M&A side. I've yet to find
a transaction, really, where we either
competed on the M&A side or we were on
opposite sides of the same transaction. So,
what you would see makes sense. It is very
complementary.
And then when you looked at research, again,
it just carries on here, that if you're not
banking the same clients, you're probably
not running into each other in research. And
in research, we listed every CUSIP, whether
Stifel followed it, whether Weisel followed
it, went straight down the line with 8%
overlap; 8% out of 1,300 companies. Again, it
just goes to the highly complementary nature
of this transaction.
On a pro forma basis, we'd have 93 senior
research analysts, we'd be number one in the
U.S. equities in terms of coverage, number
one in small cap coverage, as I've said,
cover 50% of the S&P, a broad, broad brush
across the industry. And we've also been
recognized as our research. In 2008, we were
the only firm ever to be number one in
StarMine both in earnings accuracy and stock
price performance. And then this year, we
were number two in StarMine's global
rankings in research, and number one in The
Wall Street Journal Best of the Street. I
think the first time a non-New York firm was
number one in The Wall Street Best of the
Street, and when you combine our awards with
Thom's awards, we had 14 first place awards,
almost double the firm that was second. So
we believe this research platform adds alpha
for our clients and is really the
intellectual capital of the company, but we
will also have a broad focus, but
importantly, a middle-market focus for our
clients.
3
This transaction, again, for the same
reasons in terms of who you're talking to,
the tech portfolio manager or the financial
services, what we've added is a lot of
people and enhanced our sales on trading
platforms, to both growth and value
investors, and this integration is going
very well.
I've spoke about global wealth management. I
don't want to under-emphasize it today,
because if I sit in front of you years from
now, we're not going to be talking about
2,000 financial advisors, we're going to be
talking about a significant number of more
financial advisors. And when you look at why
we've been so successful over what has been
a very difficult period in financial
services, again, client-facing businesses,
lack of proprietary trading or not taking
undue risk, plus a very growing, stable,
profitable global wealth management
business. And it's going to be the
continuing growth of the global wealth
management business that's going to continue
to drive share value for our shareholders.
Again, in terms of the merger, Thom does
have almost a billion dollar growth-oriented
fund of funds in a couple other partnerships
where they will combine with our asset
management business, and this is a business
I actually think we can build. It's
something that we have talked about, we
being Thom and I. He built a very nice asset
management business at Montgomery
Securities, and as we look forward, we think
- it's not a business that we're going to
offer proprietarily to our global wealth.
I'm not sure that business works, to take
proprietary product and sell it to our
global wealth, but we do think that we can
build an institutional asset management
business.
...
Finally, a lot of deals make sense, as this
one does, on paper. This makes tremendous
sense on paper. In fact, more sense than any
merger that I've seen in my career. But,
unless you can integrate it and unless you
can get the people to work, unless you get
everyone grabbing an oar and pulling in the
same direction, it will never work. We have
had a tremendous track record of putting
together companies over the years -- Legg
Mason, Ryan Beck, 56 branches from UBS,
Butler Wick, putting the bank in place --
and then finally, I think with Thomas
Weisel, in each one of these cases, we have
been able to integrate by keeping the key
people. And each transaction, the thing that
links all these transactions together is
that substantially, all of the key people in
every one of these transactions are still
with us today.
So, what's Stifel look like combined? As
I've said, it'll be very interesting. We are
a client-facing, pure play investment bank.
When you think about - where I think we're
going as a company, there's a tremendous
void that's been created with what's
happened in the industry - Merrill going
into the Bank of America, Lehman, Bear
Stearns - tremendous turmoil leaves, and
there's a lot of room for firms to ascend
into that second tier. We're going to be one
of those firms. We're balanced, and in many
ways people say, well, what do you look at,
what kind of firm do you want to be? And I
often will point to Merrill Lynch as a firm
that has a strong research, institutional,
global wealth, and a bank. We have that same
model. It's a model that I embrace. And as
you look at it today, our business is about
50/50. In round numbers, we'll have an $800
million global wealth management business,
an $800 million institutional business, and
a business that can grow. So we're very
excited.
One of the things that this merger does for
us that I haven't spoke to is it will help,
it already has, accelerate our recruiting on
the private client side, because a number of
advisors want to be with a growth-focused
firm that's going to have exposure to really
the pillars of growth of the economy, which
is healthcare, telecommunications, and tech.
So when we announced this transaction on our
recruiting side, our phones started ringing
off the hook. They ring off the hook anyway,
but people started getting busy signals
because of the excitement about joining our
firm.
...
Our institutional group, I just show these
slides to show the growth in the business,
but also to underscore, on a pro forma
basis, what this business looked like when
the markets were better, and the year I
would look at is 2007. So on a combined
basis with Thomas Weisel Partners, Westwind,
and Stifel, back on equity-only, we'd have
done nearly $500 million in 2007, and a lot
of that would have been in the, well, in
fact, this doesn't include Westwind when I
look at it, this is without Westwind. It
would have added another $100 million or a
little over $100 million on top of this. So,
when we run into a good market, and I
believe, well I know we will someday, we are
well-positioned.
...
4
Looking forward, we're well positioned. I've
talked about many times how excited I am,
but we think the dislocation creates
opportunities, we're going to add, we're
going to continue to grow. With our most
recent merger, we are as well-positioned as
ever on the institutional business, on the
global wealth management business, and to
continue our growth story, not over the last
couple of years, but over the last 15 years.
So, I'm excited about our prospects. We're
going to continue to drive value for our
stakeholders, clients, associates, and
shareholders alike. That's what we've done.
As we continue, really, on our goal to build
the best growth-focused, middle-market
investment bank in the country.
Patrick, with that I'll take some questions.
...
Unidentified participant
How do you retain professionals both in the
wealth management side and the institutional
side of the business, specifically, I assume
there's some you want to, some you don't,
and the ones you want to, what do you do for
them?
Ron Kruszewski - Stifel Financial Corp. - Chairman,
President & CEO
I always say, you don't get
the dog to play with you by tying a bone
around your neck, or tying something around
their neck to make them stay. You've got to
have an environment that's conducive to
people making money and a culture where
people want to work. And that's why Thomas Weisel has very good professionals that want
to work in that environment, and why we do.
We're a pure play investment bank. We're not
part of a universal bank model, and that is
very attractive, both to our institutional
business and our private client business.
Now as it relates to mergers, you have to
put something on the table because it's
customary, and we did that in the Weisel
transaction. But, in our case, we asked for
something in return. In this case, we asked
for people to commit through June of next
year to the combined organization. What it
really is, and we've been very good a
growing through the depression of the last
two years. We started the beginning of 2008
with 2,900 people in the firm and we're going
to have 5,200 now, combined, and we do that
by creating an environment that people want
to be in. In the Weisel case, which I think
is the point of your question, is that it's
our job now. The people have committed to
us, to a year, and they're excited about it.
It's our job now to make the environment
conducive, where they want to work and they
can compete and win. And when you create
that environment where people can compete
and win, or at least have a good chance of
winning, you'll keep your good people, and
we've been successful. But, knock on wood,
that's what keeps me up at night.
...
Thank you.
5
Forward-Looking Statements:
Statements in this communication that relate
to Stifel Financial Corp., as well as
Stifel, Nicolaus and Company, Inc. and its
other subsidiaries (collectively, "Stifel"
or the "Company") and Thomas Weisel Partners
Group, Inc. ("Thomas Weisel Partners")
future plans, objectives, expectations,
performance, events and the like may
constitute "forward-looking statements"
within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A
of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange
Act of 1934, as amended. Future events,
risks and uncertainties, individually or in
the aggregate, could cause our actual
results to differ materially from those
expressed or implied in these
forward-looking statements. Neither Stifel
nor Thomas Weisel Partners undertakes any
obligation to update any forward-looking
statements to reflect events that occur or
circumstances that exist after the date on
which they were made.
The material factors and assumptions that
could cause actual results to differ
materially from current expectations
include, without limitation, the following:
(1) the inability to close the merger in a
timely manner; (2) the inability to complete
the merger due to the failure to obtain
stockholder approval and adoption of the
merger agreement and approval of the merger
or the failure to satisfy other conditions
to completion of the merger, including
required regulatory and court approvals; (3)
the failure of the transaction to close for
any other reason; (4) the possibility that
the integration of Thomas Weisel Partners'
business and operations with those of Stifel
may be more difficult and/or take longer
than anticipated, may be more costly than
anticipated and may have unanticipated
adverse results relating to Thomas Weisel
Partners' or Stifel's existing businesses;
(5) the challenges of integrating and
retaining key employees; (6) the effect of
the announcement of the transaction on
Stifel's, Thomas Weisel Partners' or the
combined company's respective business
relationships, operating results and
business generally; (7) the possibility that
the anticipated synergies and cost savings
of the merger will not be realized, or will
not be realized within the expected time
period; (8) the possibility that the merger
may be more expensive to complete than
anticipated, including as a result of
unexpected factors or events; (9) the
challenges of maintaining and increasing
revenues on a combined company basis
following the close of the merger; (10)
diversion of management's attention from
ongoing business concerns; (11) general
competitive, economic, political and market
conditions and fluctuations; (12) actions
taken or conditions imposed by the United
States and foreign governments; (13) adverse
outcomes of pending or threatened litigation
or government investigations; and (14) the
impact of competition in the industries and
in the specific markets in which Stifel and
Thomas Weisel Partners, respectively,
operate.
Additional factors that may cause results to
differ materially from those described in
the forward-looking statements are set forth
in the Annual Report on Form 10-K of Stifel
for the year ended December 31, 2009, which
was filed with the Securities and Exchange
Commission ("SEC") on February 26, 2010,
under the heading "Item 1A-Risk Factors," in
the Annual Report on Form 10-K of Thomas
Weisel Partners for the year ended December
31, 2009, which was filed with the SEC on
March 12, 2010, under the heading "Item
1A-Risk Factors," in the Registration
Statement on Form S-4/A filed by Stifel on
May 20, 2010, under the section titled "Risk
Factors," and in subsequent reports on Forms
10-Q and 8-K and other filings made with the
SEC by each of Thomas Weisel Partners and
Stifel.
6
Important Merger Information and
Additional Information:
This communication does not constitute an
offer to sell or the solicitation of an
offer to buy any securities or a
solicitation of any vote or approval. In
connection with the proposed merger, Stifel
has filed with the SEC, and the SEC has
declared effective, a registration statement
on Form S-4 that includes a proxy statement
of Thomas Weisel Partners and also
constitutes a prospectus of Stifel. The
proxy statement/prospectus of Stifel and
Thomas Weisel Partners has been mailed to
the shareholders of Thomas Weisel Partners.
Stifel and Thomas Weisel Partners
shareholders are urged to read the
registration statement and any other
relevant documents filed with the SEC,
including the proxy statement/prospectus
that is part of the registration statement,
because they contain important information
about Stifel, Thomas Weisel Partners and the
proposed transaction.
You may obtain free
copies of the registration statement and
proxy statement/prospectus as well as other
filed documents containing information about
Stifel and Thomas Weisel Partners, without
charge, at the SEC's website (www.sec.gov).
Free copies of Stifel's SEC filings are also
available on Stifel's website (www.stifel.com),
and free copies of Thomas Weisel Partners'
SEC filings are available on Thomas Weisel
Partners' website (www.tweisel.com). Free
copies of Stifel's filings also may be
obtained by directing a request to Stifel's
Investor Relations by phone to (314)
342-2000 or in writing to Stifel Financial
Corp., Attention: Investor Relations, 501
North Broadway, St. Louis, Missouri 63102.
Free copies of Thomas Weisel Partners'
filings also may be obtained by directing a
request to Thomas Weisel Partners' Investor
Relations by phone to 415-364-2500, in
writing to Thomas Weisel Partners Group,
Inc., Attention: Investor Relations, One
Montgomery Street, San Francisco, CA 94104,
or by email to investorrelations@tweisel.com
.
Stifel, Thomas Weisel Partners and their
respective directors and executive officers
may be deemed, under SEC rules, to be
participants in the solicitation of proxies
from the shareholders of Thomas Weisel
Partners with respect to the proposed
transaction.
Information regarding Thomas Weisel Partners' directors and executive
officers is set forth in the proxy
statement/prospectus contained in the
Registration Statement on Form S-4/A filed
by Stifel on May 20, 2010. Information
regarding Stifel's directors and executive
officers is also available in Stifel's
definitive proxy statement for its 2010
Annual Meeting of Shareholders filed with
the SEC on February 26, 2010.
7