Leucadia National buying Jefferies Group

Leucadia National is buying the investment banking firm Jefferies Group for about $2.8 billion in stock in a deal executives

said Monday would better position both companies for growth in the years ahead.

The transaction will make Jefferies the

largest business for a diversified holding company with more than $9

billion in assets,

ranging from lumber and plastics manufacturers, energy production

facilities and an oil and gas contract driller to medical

product developers, a hotel and casino, wineries and other real

estate interests.

The news comes on the heels of the

announcement that Leucadia’s Lake Charles Clean Energy secured offtake

agreements with

BP Products North America, Air Products and Chemicals and Denbury

Offshore for products that will be produced at the $2.5

billion facility, which will be located on Port of Lake Charles

property along the Calcasieu Ship Channel near the Citgo Refinery.

The final step for the local project is attaining third party financing and approval of the Leucadia board. Construction is

expected to begin in 2013 and provide up to 1,500 construction jobs and 165 full-time employees.

Leucadia National already held a 28.6 percent stake in Jefferies, which will still operate as a full-service investment banking

firm.

After the deal closes, 35.3 percent of Leucadia’s stock will be owned by Jefferies Group Inc. stockholders.

As part of the deal, Jefferies Chairman and CEO Richard Handler will become the CEO of Leucadia. Leucadia’s Chairman and CEO

Ian Cumming will retire but remain on the board. Leucadia President Joseph Steinberg will become chairman.

Handler said deal is being done at a

time of significant strength for both companies and said its aim is to

create more long-term

value.

“In Jefferies, Leucadia is acquiring a strong engine to be its lead operating company for the future,” he said on a conference

call. “And Jefferies is becoming part of a larger platform, from which to continue its growth.”

Combining the two, he said, provides better protection “from any treacherous quarters that may surface” in the markets.

Jefferies’ stockholders will receive 0.81 of a share of Leucadia stock for each share they hold. This doesn’t include Leucadia’s

current 28.6 percent of Jefferies outstanding stock.

The companies’ boards have approved the deal. It still needs approval of both companies’ shareholders.

Jefferies’ shares rose $2, or 14 percent, to close at $16.27 on Monday.

On Monday, Leucadia National Corp. said it may spin off its Crimson Wine Group before the Jefferies’ deal is complete.

Once the transaction closes, Jefferies’ four independent directors will join Leucadia’s board, which will boost the board’s

size to 14 members.

Morningstar analyst Michael Wong said the deal is both a sound defensive and offensive move for Jefferies.

“Being a part of Leucadia with its diversified portfolio of companies and relatively strong balance sheet gives Jefferies

fairly firm backing,” he said in a note to investors. “The timing of this deal seems appropriate given the risk of a U.S.

fiscal cliff and re-emerging European debt concerns.”

For Leucadia, he said, the transaction is “transformational” but not as positive for investors.

Ratings agencies Moody’s Investors

Service, Standard & Poor’s Rating Services and Fitch Ratings said

that they are reviewing

Leucadia’s ratings for a possible upgrade. Fitch said that if the

Jefferies’ deal closes and there are no adverse credit developments,

it is likely that Leucadia’s issuer default rating will go to

investment grade status from junk status. Standard & Poor’s

said that its issuer credit rating for Leucadia may also move to

investment grade status from junk.

Leucadia fell 66 cents, or 3 percent, to close at $21.14.

Leucadia representatives could not be reached for comment Monday night.