Sterne Agee Said to Be in Talks on Deal With Gleacher

Sterne Agee Group Inc. is in talks to combine with Gleacher & Co., the investment bank that’s lost $180.4 million since 2009, people familiar with the matter said.

The negotiations may not result in a deal, the people said, asking not to be identified because the process is private. Gleacher said today in a statement that it was in talks on a possible combination with another company, which it didn’t name. The firm also said it’s exiting the fixed-income business, which generated most of its revenue.

Gleacher has been struggling to find a working strategy after sale talks last year with companies including Stifel Financial Corp. didn’t result in a deal. Founder Eric Gleacher quit in January, and the firm said last month in a regulatory filing that employees were defecting and clients were suspending trading due to questions about its strategy.

“It’s amazing how quickly it unraveled,” said Joseph Jolson, co-portfolio manager of hedge fund Harvest Opportunity Partners II LP, which owns Gleacher shares. Jolson, who said he had no knowledge of the Sterne Agee talks, said that departures had left Gleacher with “fixed overhead and not a lot of revenues.”

Andrew Siegel, a spokesman for New York-based Gleacher, declined to comment. Representatives of Sterne Agee, a Birmingham, Alabama-based brokerage, didn’t return calls seeking comment.

Investment Bank

After closing its fixed-income unit, Gleacher will be left with an investment-banking business that generated 13 percent of the firm’s revenue last year, according to Joel Jeffrey, an analyst at Keefe, Bruyette & Woods Inc. The company may be worth between 60 cents and 83 cents a share, Jeffrey wrote today in a note.

“There’s just not a lot in the business at this point,” Jeffrey said in a phone interview. “I’m not sure what people are buying.”

Shares of Gleacher climbed 7.3 percent to 73 cents at 11:23 a.m. in New York. The stock has plunged by more than half since the end of 2011.

Sterne Agee, a closely held firm founded in 1901, employs 1,300, the company said in a November press release. The firm in October agreed to acquire Orlando, Florida-based loan originator FBC Mortgage LLC.

Two years ago, Sterne Agee offered to buy SWS Group Inc., the publicly traded parent company of Southwest Securities Inc., for $7.50 a share. SWS rejected the offer, it said in a May 2011 regulatory filing. Sterne Agee also considered buying Knight Capital Group Inc.’s credit sales and trading operation, people with knowledge of the matter said in February.

Tax Implications

Adding Gleacher may help reduce the tax bill of a profitable company, Harvest’s Jolson said.

Eric Gleacher, the former head of mergers and acquisitions at Morgan Stanley and Lehman Brothers Holdings Inc., sold his boutique four years ago to Broadpoint Securities Group Inc., which eventually took on his name. He’s known for advising Kohlberg Kravis Roberts & Co. on its record-setting $30 billion buyout of RJR Nabisco Inc. in 1989.

Stifel Financial, the St. Louis-based brokerage, was said in October to be among the companies that bid on all or part of Gleacher during a strategic review that ended in February.

Gleacher said in the statement today that Clinton Relational Opportunity Master Fund LP nominated a slate of directors including Thomas Hughes, the brokerage’s chief executive officer since 2011. Stockholders are scheduled to meet May 23, it said. Hughes is a former president of Clinton Group Inc., which manages the fund.

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