March 17, 2011 / 8:48 PM / 6 years ago

UPDATE 2-Sterne Agee offers to buy SWS for $200 million

3 Min Read

* Sterne Agee offers to pay $6.25/share for SWS

* SWS shares rise 24 percent to $6.12

* SWS says it rejected several previous takeover offers (Adds comment from KBW analyst, background on SWS)

By Joseph A. Giannone

NEW YORK, March 17 (Reuters) - Dallas broker-dealer SWS Group Inc SWS.N said it received an unsolicited takeover offer of $6.25 per share in cash from Sterne Agee & Leach Inc, valuing the company at about $200 million.

SWS said it would examine the proposal, which represented a 27 percent premium to SWS's closing price on Wednesday.

SWS shares closed 24 percent higher at $6.12, the third-biggest gainer on the New York Stock Exchange.

The offer was first disclosed by Sterne Agee Chief Executive Jim Holbrook in an interview with the Birmingham News of Birmingham, Alabama. SWS's stock rose 22 percent on Thursday morning after the story was posted on the newspaper's website.

Closely held Sterne Agee, which is based in Birmingham, said a combination with SWS would double its size, creating a firm with 800 advisers and about $750 million in revenue.

SWS, parent of Southwest Securities, said it rejected "a number" of previous proposals from Sterne Agee.

SWS spokesman Ben Brooks did not return calls and an outside spokesman for the firm declined to comment. SWS did not disclose the offer, which was delivered in a letter on Wednesday, in any Securities and Exchange Commission filings.

Sterne Agee officials could not be reached.

KBW brokerage analyst Joel Jeffrey said an SWS statement suggests the company is skeptical about a merger with Sterne Agee. Ross, the former brokerage unit boss who took over as company CEO in August, may also have a hard time embracing an offer that values SWS at 40 percent below its book value.

"That's tough to swallow," Jeffrey said. "So it's understandable if SWS is not terribly interested."

That said Jeffrey added the company probably needs to raise new capital -- as much as $30 million by his estimates.

SWS stock sank to below $4 in December after the company withdrew plans to issue $95 million in convertible securities, proceeds from which were earmarked for the troubled bank.

SWS shares revived last month after fiscal second-quarter results revealed credit trends that were not as dire as feared. That said, the company announced federal bank regulators had formalized a cease and desist order that restricts its banking activities.

"There are still credit issues there," Jeffrey said, citing high levels of "classified assets" on its books, which are loans to borrowers that are still making payments, but give SWS reasons for concern. If economic conditions weaken, he said, these assets could go bad. (Reporting by Joseph A. Giannone; editing by Ted Kerr; editing by Andre Grenon)

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