NEW YORK (Reuters) - Raymond James Financial Inc is in the lead to buy brokerage Morgan Keegan from Regions Financial Corp in a deal that would bolster the firm’s prowess in trading securities for customers, according to people familiar with the situation.
Raymond James emerged as the potential winner after a second bidder, Stifel Financial Corp, dropped its offer price for Morgan Keegan to below $1 billion, worrying whether enough brokers would stay after a purchase closed, these people said Monday.
Morgan Keegan is expected to be valued at about $1.2 billion, including a $250 million cash dividend that the brokerage will pay Regions prior to a sale. Regions bought Morgan Keegan in 2001 for $789 million.
Officials at the companies involved either declined to comment or could not be reached for comment.
A deal had not been reached late Monday, but people familiar with the situation said final terms were being negotiated and a sale could be announced this week. Talks could, however, still fall apart.
If Raymond James emerges as the winner, it would bolster its regional brokerage business, adding to the 5,400 advisors it already has. Morgan Keegan has about 1,200 advisors.
Birmingham, Alabama-based Regions has been trying to sell Morgan Keegan since the summer in a move that could help it repay $3.5 billion it owes the U.S. government in bailout aid.
The auction of Morgan Keegan, based in Memphis, Tennessee, has seen a series of twists and turns, as both rivals and private equity firms jockeyed for the business. Tough financing markets and a challenging operating environment made it hard for bidders to pay top dollar for the brokerage.
Initially, it looked like private-equity consortiums might buy the brokerage. But in recent days, Stifel and Raymond James emerged as the final bidders.
Stifel, based in St. Louis, had proposed a cash-stock offer and had obtained full financing. Raymond James, based in St. Petersburg, Florida, had proposed an all-cash offer. The two were told to finalize their bids over the weekend and submit them Sunday.
Typically, the buyer of a brokerage wants to ensure that brokers won’t depart for competing firms. Because Stifel was concerned that brokers would leave, it decided to drop its offer below $1 billion so it could add money to a retention pool it needed to pay brokers to stay, one of the sources said.
A second person familiar with the situation, however, said Regions was not convinced that Stifel intended to bolster the size of the retention pool.
Stifel, which already had dropped out once, could still decide to bolster its bid.
Reporting By Carrick Mollenkamp; Editing by Paritosh Bansal and Matt Driskill