The Refco saga continues

JC Flowers has pulled out of the deal. Apparently, they received preferential treatment (a break-up fee of up to $21.5 million and reimbursed expenses up to $7 million) which the bankruptcy judge would not allow. Flowers reduced its offer, but it was still not acceptable to the judge.

It looks as though Flowers was favored by the Refco board to such a degree that other potential bidders were not allowed access to the documents and information that should have been available to enable them to evaluate making a potentially higher bid. In fact, a higher bid ($60 million more than Flowers') has been made and others are being considered.

Closer to the finish line

Refco has agreed to sell its futures unit to J.C. Flowers and a group of other investors for $768 million and they'll be filing for Chapter 11, perhaps today. There is a slight chance that Dubai may top the current offer and go to $1 billion.

Alumni of Goldman Sachs, the lead underwriter of Refco's IPO, will still be involved with Refco. Flowers is ex-head of M&A at Goldman and the new chairman is also an ex-Goldman guy.

What's $33 billion among friends?

I suppose we shouldn't be surprised by the change in Refco's statement to the bankruptcy court re their assets. In their initial filing, the accountants at Refco (the guys who, according to the offering circular could not close the books on time) or Grant Thornton (the auditors who claimed a hedge fund would pay the money that they didn't know Bennett owed) claimed the company had $49 billion in assets. Two days later the number was down to $16.5 billion.

Customer deposits are at $4.1 billion, still a few hundreds of millions above the number at which Flowers can walk away from the deal. Things have been on a very, very fast track and maybe the court will approve the deal by November as Flowers wants.

Nearing the End?

It's been a heck of a week! It looks as though J.C. Flowers will be buying Refco's futures business and Refco Capital Markets will be put into bankruptcy later this week. Refco will probably go down in history as the fastest implosion ever.

It's not over till its over

Some details are coming out re Flowers' acquisition of Refco's futures business which could prevent the deal from closing:

• The deal has to be approved by the bankruptcy court. I can't see the court saying no.
• The new owners will not incur liabilities based on the most recent problems. This might be dicey.
• Customer assets can't fall below $3.75 billion when averaged over three days. As of May 31, these assets totaled $4.1 billion but Cargill was acquired since then and many customers have jumped ship over the past week. It's unlikely that assets will fall below the magic number as Flowers & company seem to be calming the markets.

A very busy Sunday

Refco has hired Greenhill & Co. as an adviser even though Goldman is doing their work pro bono. I wonder whether this has anything to do with the smell over Goldman's handling of the IPO.

Word is that J.C. Flowers, a private equity fund run by a former Goldman M&A guy, will be buying Refco's futures business.