Man Raises $2.9 Billion From MF IPO, Less Than Sought (Update3)

Date: Thursday, July 19, 2007
Author: Elizabeth Hester and Elisa Martinuzzi, Bloomberg

July 19 (Bloomberg) -- Man Group Plc raised $2.92 billion from the initial share sale of its MF Global brokerage unit, less than planned, after the failure of two Bear Stearns Cos. hedge funds heightened concern about the industry's prospects.

Man sold 97.4 million shares of Hamilton, Bermuda-based MF Global yesterday at $30 apiece, the company said in a statement, raising about $900 million less than it sought. MF Global, which handles trades in futures, options and other derivatives on and off exchanges, had set a range of $36 to $39. The shares fell as much as 9.6 percent to $27.13 in their debut in New York today.

Bear Stearns told investors in the two hedge funds that they'll get little if any money back after a plunge in the value of securities used to bet on subprime mortgages. The losses rattled financial markets yesterday and sent shares of 11 of the 12 stocks in the Amex Securities Broker/Dealer Index down. Merrill Lynch & Co., the world's largest brokerage firm, dropped 3.3 percent and Morgan Stanley fell 2.8 percent.

The businesses of futures brokers ``may have peaked and revenue growth will be decelerating,'' said Alain Tchibozo, an analyst at ING Wholesale Banking in Paris.

Refco Assets

The initial public offering, the second biggest in the U.S. this year, values MF Global at $3.64 billion, based on 121.3 million shares outstanding. MF Global also plans to sell $1.2 billion of debt. Man Group keeps 20 percent of MF Global.

Man Group, based in London, sold MF Global to concentrate on its hedge-fund business, which oversees more than $65 billion. The brokerage is the fourth-largest operator in the $4.5 trillion-a-day global futures market. Man Group built up the unit by acquiring assets from Refco Inc. when the New York- based futures broker went bankrupt in 2005.

``It was what I call the poster child for a bailout,'' said Francis Gaskins, president of IPODesktop.com in Marina Del Rey, California. ``They're selling 80 percent of the company and doing a concurrent debt offering.''

The failure of the Bear Stearns funds follows the shutdown in May of UBS AG's Dillon Read Capital Management LLC hedge fund and last year's meltdown of Amaranth Advisors LLC, which made wrong-way bets on natural-gas futures.

Surging Profit

MF Global's sale was managed by 16 investment banks, led by Citigroup Inc., JPMorgan Chase & Co., Lehman Brothers Holdings Inc., Merrill Lynch & Co. and UBS. Citigroup and JPMorgan arranged the debt sale.

Profit at MF Global more than tripled to $188 million in the year ended March 31, according to the company's prospectus. Revenue more than doubled to $5.7 billion. MF Global is run by Chief Executive Officer Kevin R. Davis, 46. He's been head of Man Financial since November 1999 and on the board of Man Group since April 2000.

MF Global competes with the Fimat Group unit of Paris-based Societe Generale SA and the Calyon Financial Inc. arm of France's Credit Agricole SA, which are merging.

``The issue is one of scale,'' said ING's Tchibozo. The two are merging to cut costs, he said.

MF Global will trade on the New York Stock Exchange under the ticker MF. Moody's Investors Service has an A3 credit rating on MF Global, while Standard & Poor's rates it BBB+.

Shares of Man Group gained 6 pence, or 0.7 percent, to 606.5 pence as of 2:55 p.m. in London.

To contact the reporters on this story: Elizabeth Hester in New York at ehester@bloomberg.net ; Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net