Cowen's China play involves more than just money

China Oceanwide Holdings

30/03/2017 04:41

(The author is a Reuters Breakingviews columnist.  The opinions 
expressed are his own.) 
    By Tom and Buerkle 
    NEW YORK, March 29 (Reuters Breakingviews) - Peter Cohen has 
been angling for an investment banking comeback since he merged 
his Ramius alternatives investment shop with brokerage Cowen 
Group  COWN.O  eight years ago. He's built on the firm's core 
healthcare franchise, but a slump in initial public offerings 
threatens his ambitions. Now the former Shearson chief 
executive, whose role in putting RJR Nabisco in play was 
chronicled in "Barbarians at the Gate", believes he's found a 
solution: Chinese cash and connections. 
    Cowen is raising $275 million in equity and debt from CEFC 
China, a fast-growing conglomerate run by Ye Jiangming that is 
also known as China Energy. Assuming regulators in both 
countries agree - which is not guaranteed, especially given 
jumpiness in China about splashy overseas deals - the Shanghai 
firm will get a 19.9 percent stake. 
    For both sides, the time is right. A slump in new equity 
offerings in the U.S. last year hit Cowen hard. Its investment 
banking revenue plunged 40 percent, pushing the firm into the 
red to the tune of $26 million. Prior to the CEFC deal, its 
stock was off nearly 50 percent from its 2015 highs and got only 
about half the bump as other investment banks did following the 
U.S. election in November.  
    Cowen has expanded modestly into credit, prime brokerage and 
mergers and acquisitions. The Chinese deal means a bigger 
shopping budget, and potentially more business from mainland 
firms looking for U.S. listings.  
    For CEFC, the knowledge gained from owning a stake in Cowen 
could help boost its Shanghai securities business. It ranked a 
lowly 121st among the country's 125 brokerages by revenue in 
2015, official data shows, but growth was respectable and the 
firm is looking to grow outside the mainland. It agreed last 
year to buy a Czech bank. 
    CEFC is one of numerous Chinese conglomerates chasing 
financial businesses abroad. But this seems like a better fit 
than some other recent deals, such as aviation-to-property group 
HNA's bid for fund-of-hedge-funds business SkyBridge, or China 
Oceanwide's  0715.HK  $2.7 billion move on Genworth Financial 
 GNW.N , an ailing U.S. insurer. For one of investment banking's 
original barbarians, this is a good time to seek China's 
blessing. 
     
    On Twitter https://twitter.com/tombuerkle 
 
    CONTEXT NEWS 
    - Cowen Group said on March 29 it had agreed to sell a 19.9 
percent stake to China Energy Company for $100 million. CEFC 
China, as the buyer is known, will have the right to appoint 
three directors to Cowen's board, raising the number of seats to 
11. 
    - The investment banking boutique will sell newly issued 
shares to CEFC China at $18.00 a share, a premium of 29.5 
percent to the previous day's closing price. The proceeds will 
repay Cowen's $63 million in 8.25 percent bonds due in 2021 and 
finance growth opportunities, the company said. 
    - The Chinese company will also provide Cowen with a 
six-year unsecured loan of $175 million. 
    - Cowen's share price rose 9 percent on the day to $15.15. 
    - For previous columns by the author, Reuters customers can 
click on  BUERKLE/  
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CEFC China to buy 20 pct stake in U.S. brokerage Cowen    
 urn:newsml:reuters.com:*:nL3N1H64AT 
Cowen announcement    http://phx.corporate-ir.net/phoenix.zhtml?c=197188&p=irol-newsArticle_pf&ID=2257255 
  
BREAKINGVIEWS - HNA buys SkyBridge to White House    
 urn:newsml:reuters.com:*:nL1N1F8035 
BREAKINGVIEWS - China Oceanwide buys GE sloppy insurance seconds 
    urn:newsml:reuters.com:*:nL4N1CU162 
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 (Editing by Quentin Webb and Nicolle Liu) 
 ((thomas.buerkle@thomsonreuters.com;)(Reuters Messaging: 
thomas.buerkle.thomsonreuters.com@reuters.net)) 
 
Keywords: COWEN GRP STAKE/BREAKINGVIEWS