Jefferies Reveals Suitor’s Move, Poison Pill

Jefferies Group, the maverick Los Angeles brokerage on the mend after its founder resigned last year for securities violations, said Thursday that it received an unsolicited inquiry from an unnamed party interested in acquiring a controlling stake.

The company also said it enacted a “poison pill” takeover defense designed to discourage hostile bids.

The company noted, however, that no formal offer was made and that the poison pill was not enacted in response to any offers or indications of interest.

“The company is not for sale,” Frank E. Baxter, president and chief executive, said in a telephone interview from his New York office. The aim of the poison pill is not to rule out all bids but only “coercive or unfair” ones that discriminate against certain shareholders by not offering all holders a “fair” price, Baxter said.

The poison pill in effect would allow shareholders, other than a hostile suitor, to buy additional stock at half price, diluting the suitor’s holdings and thus making its bid prohibitively expensive.

Baxter refused to identify the party interested in a controlling stake but did say it was not a current shareholder.

Jefferies, he said, “is not interested in pursuing the inquiry.”

A hostile takeover of Jefferies is seen as improbable because of the high percentage of stock owned by employees and other friendly parties. Thanks to recently completed purchases by the company’s employee stock ownership plan, Jefferies employees now own 30%, of which about 10% is held through the ESOP. Company founder Boyd L. Jefferies owns 10.3%; Templeton, Galbraith & Hansberger, a Bahamas-based investment firm, holds 15.3%; Tweedy, Browne Inc., a New York investment advisory firm, has 7.6%, and Primerica, a Greenwich, Conn., financial services firm, holds 8% but also has securities that, if converted, would give it a 20% stake.

A hostile takeover also is improbable because Jefferies’ primary assets are its traders and other skilled employees, who might leave in an unfriendly acquisition.

Nonetheless, in over-the-counter trading Thursday, Jefferies stock rose $1.50 a share to close at $11.75, perhaps indicating speculation of a friendly bid.

Firm Has Recovered

Jefferies is a pioneer and major player in so-called “third market” trading, where securities listed on exchanges are traded off those exchanges, usually when the markets are closed or when trading is halted. Such services are often used by corporate raiders or big institutional investors.

Jefferies’ reputation was tarnished last year when founder Boyd Jefferies resigned and pleaded guilty to two felony securities violations. One of the violations involved his illegally “parking” stock for professional speculator Ivan F. Boesky, buying and holding it to allow Boesky to evade regulatory limits.

Company officials and customers say the firm has recovered nicely from the loss of the founder, avoiding massive defections while increasing market share. However, like other brokerages, its profit fell last year, to $6.2 million from $13.7 million in 1986.

Jefferies received another potential blow last week when the Securities and Exchange Commission empowered the National Assn. of Securities Dealers to halt over-the-counter trading in individual stocks pending corporate news announcements. That would also allow the NASD to halt third market trading by Jefferies and others.

Shareholder Objects

Under the poison pill, which Jefferies called a “shareholders rights plan,” shareholders other than a hostile suitor will be given rights that, if exercised at a price of $40, will entitle them to buy the equivalent of $80 worth of common shares.

The rights will be exercisable only if a party acquires 20.1% or more of common “other than through a tender or exchange offer for all common shares that provides a fair price and other acceptable terms for such shares.”

At least one large Jefferies shareholder reacted negatively to the announcement.

“In general, we’ve never been favorably disposed to them (poison pills),” said Christopher H. Browne, general partner of Tweedy, Browne. “They’re management insurance programs; they don’t benefit the shareholders in any way.”