Refco Acquires CIS
McMahon, Chris, Modern Trader
Refco Group Ltd., which filed an S-1 and announced its intent to sell public shares in the company, has entered an agreement to acquire London-based Cargill Investor Services (CIS), which executes futures and options contracts for parent company Cargill Inc., the largest grain producer in the United States. The deal is potentially valued at $400 million and is expected to close before the end of August.
Refco bought CIS for $218 million in cash and contingent future payments of between $67 million and $192 million based on performance. The combined operations will create the sixth largest brokerage house in the United States. James Davison, president of CIS, will become CEO and president of Refco Investment Services.
"There have been fears in the IPO industry regarding weak debuts from companies entering the public market," says Stuart Ober, president of Securities Investigations Inc. of Woodstock, New York, a research and due diligence firm. "And to the extent that that sent shivers down the private equity community and raised concerns, they may have wanted to create the impression and actual reality of growth and acquisitions."
A spokesperson for Cargill Inc. says, "We are not getting out of the financial businesses entirely. We are a very diversified company and we will do what it takes to help each of our business units grow and achieve their own desires ... [and,] in terms of CIS, it was our belief, and the belief of the business managers in CIS, that Refco made a lot more sense for them. …