Is Piper Jaffray About to Move to China?

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Investment bank Piper Jaffray
PJC
saw stocks jump the most in four months after it was reported on Thursday that it may be about to be sold to a Chinese Securities firm. Following the news,
Bloomberg
said that Piper Jaffray jumped 3.8% to $25.52 per share at 9:50 a.m. in New York, after rising up to 9.8% earlier in the session, which is the firm's biggest gain since October 27. The Chinese company in question has not been named, but apparently Piper Jaffray is in exclusive discussions with one company. At the moment, nobody is quite sure what the deal would entail. At this stage, it could mean a takeover, buying a stake or forming a joint venture. Nobody at Piper Jaffray has responded with a comment. 2011 saw Piper Jaffray report a net loss of $102 million, or $6.51 per diluted share, with revenue dropping 14% to $458 million. Following those numbers, the stock fell 39% in 12 months through Wednesday's close. The market value of PJC is now approximately $492 million. During an earnings conference call on January 25, PJC CEO Andrew Duff gave no hint at a massive deal with a Chinese company, saying “I would like to focus the rest of my remarks on the strategic initiatives that we established in 2010 and our outlook for 2012.We remain committed to our strategy, and we made progress against it in 2011. Also, we remain focused on our key objective to increase the proportion of higher margin, higher return businesses, in order to improve our return on equity.These businesses are public finance, asset management, and M&A. In 2011, they represented 53% of our revenues, up from 50% in 2010.” Later in the call, he added, “As we look ahead to 2012, we expect a continued challenging operating environment. The European debt crisis, a slowing economy in China, and a slow economic recovery in the US remain the largest factors hindering more robust growth. Against this backdrop, our lowered cost structure should enhance our ability to generate profits, and create even greater operating leverage. And we expect to see more contribution in 2012, as a result of the investments we have made in public finance, asset management, and the changes in M&A. We have a clear strategy, and we will continue to execute it -- against it, in the year ahead. Now I'd like to turn the call over to Deb to review the financial results in more detail.” Could it be that Duff means that PJC will continue to execute the company strategy from China? On January 26, Keefe Bruyette & Woods released a research report stating that PJC delivered a miss to consensus and our estimate on an operating basis (excluding $120M in goodwill impairment) on much lower than expected net revenue, mainly in institutional brokerage, partially offset by higher investment banking revenue, lower absolute comp, and a tax benefit. It is clear that something has to be done. Events, as they unfold, will be fascinating.
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