Company Website:
http://www.jmpg.com
SAN FRANCISCO -- (Business Wire)
JMP Group Inc. (NYSE:JMP),
an investment banking and alternative asset management firm, announced
today that its board of directors has instructed its management to
finalize its due diligence regarding the potential consummation of a
transaction whereby JMP Group, or “JMP,” would enter into a series of
related and concurrent internal transactions to convert its corporate
form into a limited liability company that would be taxed as a
partnership, and not as a corporation, for U.S. federal income tax
purposes. The proposed restructuring transaction would allow JMP to
operate in a more tax-efficient manner compared to its current
structure. If the restructuring were to occur, it would be expected that
JMP would be able execute its current business strategy in a manner that
would minimize entity-level taxation on its net investment income.
Under such a restructuring plan, JMP would enter into an agreement and
plan of merger with a newly formed, wholly owned limited liability
company subsidiary, JMP Group LLC, and a newly formed Delaware
corporation and indirect wholly owned subsidiary, JMP Merger Corp.
Subject to final approval of the board of directors and stockholder
approval, JMP would be merged with and into JMP Merger Corp., with JMP
Group Inc. continuing as the surviving entity as a direct wholly owned
subsidiary of JMP Group LLC (the “Reorganization Transaction”).
Following the Reorganization Transaction, JMP Group LLC would hold,
through its subsidiaries, including JMP, the assets currently held by
JMP. The Reorganization Transaction would have the effect of converting
JMP’s top-level form of organization from a corporation to a limited
liability company, with such conversion treated as a tax-deferred
contribution of JMP Group Inc. common stock to JMP Group LLC for federal
and state income tax purposes.
“We are very excited about the prospects for consummating this
transaction, which would result in a more tax-efficient structure that
will maximize distributable investment income to JMP shareholders,” said
Chairman and Chief Executive Officer Joe Jolson. “Since inception, JMP
has invested its capital in its proprietary fund strategies as well as
opportunistically in new business ventures. As such, this new corporate
structure would be well aligned with how the firm has historically
operated. Further, our dividend payout ratio could increase materially,
depending on the mix of earnings between our operating platforms that
would remain fully taxed corporations and our net investment earnings at
the publicly traded partnership that will be mostly passed through to
shareholders. Based on our current business mix adjusted for the
restructuring transaction, we believe that the dividend payout ratio
could increase to a range of 50% to 70% of operating earnings from the
most recent 30% to 35% targeted level. If our board of directors gives
its final approval upon the completion of our due diligence, we hope to
move as rapidly as is practical to execute the Reorganization
Transaction, with a targeted consummation date of January 1, 2015, to
correspond with the taxable year.”
Stockholder Implications
Because we expect that the Reorganization Transaction will be treated as
a tax-deferred contribution of JMP Group Inc. common stock to JMP Group
LLC for federal and state income tax purposes, we do not expect that JMP
stockholders will recognize any taxable gain or loss upon the
consummation of the Reorganization Transaction. In addition, we expect
that JMP stockholders will receive a carryover tax basis in the shares
of JMP Group LLC received in the one-for-one exchange for shares of JMP
Group Inc. and that the capital gains holding period will also carry
over.
In the registration statement and proxy materials that JMP will file in
connection with the Reorganization Transaction, if approved by the board
of directors, stockholders will be urged to consult their tax advisor
regarding the tax consequences that the Reorganization Transaction will
have on them.
It is JMP’s intent that the operations and assets of the new parent
company will remain the same as those that exist at JMP prior to any
Reorganization Transaction. It is expected that the new parent company,
JMP Group LLC, will be listed on the New York Stock Exchange, exactly as
JMP is currently listed. However, after a Reorganization Transaction,
JMP Group LLC is expected to be treated as a partnership for purposes of
federal and state income taxes and, as a result, it will provide its
stockholders with an annual Schedule K-1 (IRS Form 1065).
IMPORTANT ADDITIONAL INFORMATION MAY BE FILED WITH THE SEC
This communication is not a solicitation of a proxy from any security
holder of JMP. Subject to final approval by the board of directors,
the merger will be submitted to JMP’s stockholders for their
consideration; and, in connection with such consideration, JMP and JMP
Group LLC expect to file with the Securities and Exchange Commission
(the “SEC”) a definitive proxy statement/prospectus to be used to
solicit JMP stockholder approval of the merger, as well as other
relevant documents concerning the proposed merger, as part of a
registration statement related to common shares of JMP Group LLC. Security
holders are urged to read the proxy statement/prospectus, registration
statement and any other relevant documents when they become available,
because they will contain important information about JMP, JMP Group LLC
and the merger, including its terms and anticipated effects and risks to
be considered by JMP’s stockholders in connection with the merger.
The proxy statement/prospectus and other documents relating to the
merger, when available, may be obtained free of charge from the SEC’s
website, at http://www.sec.gov.
The documents, when available, may also be obtained free of charge from
JMP on its website, at http://www.jmpg.com,
or upon written request to JMP Group Inc., Attention: Investor
Relations, 600 Montgomery Street, Suite 1100, San Francisco, CA 94111,
or by calling (415) 835-8900. Information appearing on JMP’s website
does not constitute a part of this press release.
PARTICIPANTS IN THE SOLICITATION
JMP and its officers and directors may be deemed to be participants in
the solicitation of proxies from JMP stockholders with respect to the
merger. A description of any interests that JMP’s officers and directors
may have in the merger will be available in the proxy
statement/prospectus when it becomes available. Information concerning
JMP’s directors and executive officers is set forth in JMP’s proxy
statement for its 2014 annual meeting of stockholders, which was filed
with the SEC on April 29, 2014, and its Annual Report on Form 10-K,
which was filed with the SEC on March 13, 2014. These documents are
available free of charge at the SEC’s website, at http://www.sec.gov,
or by going to the investor relations page on JMP’s website, at http://www.jmpg.com.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Statements in this press release regarding the merger, the target date
for completing the merger, future potential financial and operating
effects and potential benefits of the merger, financial condition,
results of operations and business and any other statements about JMP or
JMP Group LLC managements’ future expectations, beliefs, goals, plans or
prospects constitute “forward-looking statements” within the meaning of
the Private Securities Litigation Reform Act of 1995 and as defined in
Section 27A of the Securities Act and Section 21E of the Exchange Act.
These statements are subject to risks and uncertainties and are based on
the beliefs and assumptions of our management, based on information
currently available to our management. Forward-looking statements can be
identified by the use of the future tense or other forward-looking words
such as “could,” “will likely result,” “if,” “in the event,” “may,”
“might,” “should,” “shall,” “will,” “believe,” “expect,” “anticipate,”
“plan,” “predict,” “potential,” “project,” “intend,” “estimate,” “goal,”
“objective,” “continue,” or the negatives of these terms and other
similar expressions, we intend to identify forward-looking statements.
These forward-looking statements include information about possible or
assumed future tax benefits, results of our business, financial
condition, liquidity, results of operations, plans, strategy and
objectives. The statements we make regarding the following subject
matters are forward-looking by their nature:
-
entering into or consummating the merger or the Reorganization
Transaction;
-
the board of directors’ final approval of the Reorganization
Transaction;
-
the stockholders’ approval of the merger;
-
the anticipated benefits of the Reorganization Transaction;
-
the timing of the Reorganization Transaction;
-
the tax treatment of the Reorganization Transaction;
-
the ability to increase our dividend payout ratio; and
-
the ability to list the new parent company on the NYSE.
These forward-looking statements are based on our beliefs, assumptions
and expectations of future performance, taking into account the
information currently available to us. These statements are only
predictions based upon our current expectations and projections about
future events. There are important factors that could cause our actual
results, level of activity, performance or achievements to differ
materially from the results, level of activity, performance or
achievements expressed or implied by the forward-looking statements,
including the following:
-
the potential impact of the announcement of the merger or consummation
of the merger, including the potential impact to the value of JMP’s
common stock;
-
changes in JMP’s cash or liquidity requirements;
-
changes in tax laws and policies; and
-
economic conditions, including volatility and disruption of the
capital and credit markets.
Although we believe the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. You should not rely upon
forward-looking statements as predictions of future events. We undertake
no duty to update any of these forward-looking statements after the date
hereof to conform prior statements to actual results or revised
expectations unless otherwise required by law.
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated balance sheet of JMP
Group Inc. is presented as if the proposed Reorganization Transaction
had occurred on June 30, 2014. The presentation of unaudited pro forma
non-GAAP operating net income and pro forma GAAP net income are
presented as if the Reorganization Transaction had occurred on January
1, 2013. The notes to presentation of the unaudited non-GAAP operating
net income and GAAP pro forma net income describe the pro forma amounts
and adjustments presented below.
The unaudited pro forma condensed consolidated balance sheet, the
unaudited pro forma non-GAAP operating net income, and the unaudited pro
forma GAAP net income are not necessarily indicative of the actual
financial measures that would result from the Reorganization
Transaction. The unaudited pro forma condensed consolidated balance
sheet, the unaudited pro forma non-GAAP operating net income, and the
unaudited pro forma GAAP net income do not give effect to non-recurring
transaction costs or realization of taxable gains and losses related to
the asset transfers in connection with the Reorganization Transaction,
the potential impact of current financial conditions, market conditions,
regulatory matters or any anticipated approvals associated with the
transactions.
|
Unaudited Pro Forma Condensed Consolidated Balance Sheet |
($ in thousands) |
|
|
|
|
June 30, 2014
|
| | |
|
Reorganization
| | |
| |
Historical
| |
Transaction
| |
Pro Forma (1) |
| | | | | | |
|
Assets
| | | | | | | |
Deferred tax assets
| |
$8,959
| |
($2,324
|
)
| (2) |
$6,635
|
All other assets
| |
1,240,149
| |
-
|
| |
1,240,149
|
Total assets
| |
$1,249,108
| |
($2,324
|
)
| |
$1,246,784
|
| | | | | | |
|
Liabilities and Stockholders' Equity
| | | | | | | |
| | | | | | |
|
Liabilities
| | | | | | | |
Deferred tax liability
| |
$4,295
| |
($1,991
|
)
| (2) |
$2,304
|
All other liabilities
| |
1,003,152
| |
-
|
| |
1,003,152
|
Total liabilities
| |
1,007,447
| |
(1,991
|
)
| |
1,005,456
|
| | | | | | |
|
Stockholders' Equity
| | | | | | | |
Total equity
| |
241,661
| |
(333
|
)
| |
241,328
|
Total liabilities and stockholders' equity
| |
$1,249,108
| |
($2,324
|
)
| |
$1,246,784
|
(1) |
|
The pro forma condensed consolidated balance sheet does not include
the impact of transaction costs or the realization of tax gains or
losses related to the Reorganization Transaction.
|
(2) | |
Deferred tax balances have been revised to reflect investment assets
transferred out of a corporate tax solution as of June 30, 2014, as
part of the contemplated Reorganization Transaction.
|
|
Non-GAAP Unaudited Pro Forma Operating Net Income |
(in thousands, except per share amounts) |
|
|
|
Year Ended December 31, 2013
|
| | |
|
Reorganization
| | |
| |
Historical
| |
Transaction
| |
Pro Forma
|
| | | | | |
|
Operating income before taxes
| |
$21,835
| |
($750
|
)
| (2) |
$21,085
|
Income tax expense assumed
| |
8,296
| |
5,642
|
| (3) |
2,654
|
Operating net income (1) | |
$13,539
| |
4,892
|
| |
$18,431
|
| | | | | |
|
Operating net income per share:
| | | | | | |
Basic
| |
$0.61
| | | |
$0.83
|
Diluted
| |
$0.60
| | | |
$0.81
|
| | | | | |
|
Weighted average shares outstanding:
| | | | | | |
Basic
| |
22,158
| | | |
22,158
|
Diluted
| |
22,650
| | | |
22,650
|
| | | | | |
|
| | | | | |
|
| |
Six Months Ended June 30, 2014
|
| | | |
Reorganization
| | |
| |
Historical
| |
Transaction
| |
Pro Forma
|
| | | | | |
|
Operating income before taxes
| |
$13,566
| |
($375
|
)
| (2) |
$13,191
|
Income tax expense assumed
| |
5,154
| |
2,886
|
| (3) |
2,268
|
Operating net income (1) | |
$8,412
| |
2,511
|
| |
$10,923
|
| | | | | |
|
Operating net income per share:
| | | | | | |
Basic
| |
$0.39
| | | |
$0.50
|
Diluted
| |
$0.37
| | | |
$0.48
|
| | | | | |
|
Weighted average shares outstanding:
| | | | | | |
Basic
| |
21,766
| | | |
21,766
|
Diluted
| |
22,778
| | | |
22,778
|
(1) |
|
Pro forma non-GAAP operating net income does not include the impact
of transaction costs or realization of taxable gains and losses
related to the asset transfers in connection with the Reorganization
Transaction.
|
(2) | |
Consists of estimated costs for administration and compliance
related to annual production of IRS Schedules K-1.
|
(3) | |
Estimated tax benefit to reflect the Reorganization Transaction,
with JMP Group’s top-level form of organization converted from a
corporation to a limited liability company as of January 1, 2013.
|
|
GAAP Unaudited Pro Forma Net Income |
(in thousands, except per share amounts) |
|
|
|
Year Ended December 31, 2013
|
| | |
|
Reorganization
| | |
| |
Historical
| |
Transaction
|
|
Pro Forma
|
| | | | | | |
Income before income tax expense
| |
$17,551
| |
($750
|
)
| (2) |
$16,801
|
Income tax expense
| |
3,950
| |
(1,209
|
)
| (3) |
5,159
|
Net income
| |
13,601
| |
(1,959
|
)
| |
11,642
|
Less: Net income attributable to noncontrolling interests
| |
9,973
| |
-
|
| |
9,973
|
Net income attributable to JMP Group Inc. (1) | |
$3,628
| |
($1,959
|
)
| |
$1,669
|
| | | | | |
|
Net income attributable to JMP Group Inc. per share
| | | | | | |
Basic
| |
$0.16
| | | |
$0.08
|
Diluted
| |
$0.16
| | | |
$0.07
|
| | | | | |
|
Weighted average shares outstanding:
| | | | | | |
Basic
| |
22,158
| | | |
22,158
|
Diluted
| |
23,317
| | | |
23,317
|
| | | | | |
|
| | | | | |
|
| |
Six Months Ended June 30, 2014
|
| | | |
Reorganization
| | |
| |
Historical
| |
Transaction
|
|
Pro Forma
|
| | | | | |
|
Income before income tax expense
| |
$12,129
| |
($375
|
)
| (2) |
$11,754
|
Income tax expense
| |
4,146
| |
2,469
|
| (3) |
1,677
|
Net income
| |
7,983
| |
2,094
| | |
10,077
|
Less: Net income attributable to noncontrolling interests
| |
790
| |
-
|
| |
790
|
Net income attributable to JMP Group Inc. (1) | |
$7,193
| |
$2,094
|
| |
$9,287
|
| | | | | |
|
Net income attributable to JMP Group Inc. per share
| | | | | | |
Basic
| |
$0.33
| | | |
$0.43
|
Diluted
| |
$0.30
| | | |
$0.39
|
| | | | | |
|
Weighted average shares outstanding:
| | | | | | |
Basic
| |
21,766
| | | |
21,766
|
Diluted
| |
23,640
| | | |
23,640
|
(1) |
|
Pro forma net income attributable to JMP Group Inc. does not include
the impact of transaction costs or realization of taxable gains and
losses related to the asset transfers in connection with the
Reorganization Transaction.
|
(2) | |
Consists of estimated costs for administration and compliance
related to annual production of IRS Schedules K-1.
|
(3) | |
Estimated tax benefit to reflect the Reorganization Transaction,
with JMP Group’s top-level form of organization converted from a
corporation to a limited liability company as of January 1, 2013.
|
| |
|
Non-GAAP Financial Measures
In addition to the GAAP pro forma financial information presented in
this press release, JMP has also presented non-GAAP pro forma financial
information. The non-GAAP pro forma financial information is provided to
enhance investors’ overall understanding of JMP’s financial performance
after giving effect to the potential Reorganization Transaction.
Furthermore, company management believes that this presentation enables
more meaningful comparison of JMP’s financial performance across various
periods. However, the non-GAAP pro forma financial information presented
should not be considered a substitute for results that are presented in
a manner consistent with GAAP. A limitation of the non-GAAP pro forma
financial information presented is that the adjustments concern gains,
losses or expenses that JMP generally expects to continue to recognize.
The adjustment of these non-GAAP items should not be construed as an
inference that these gains or expenses are unusual, infrequent or
non-recurring. Therefore, both GAAP measures of JMP’s financial
performance and the respective non-GAAP measures should be considered
together. The non-GAAP measures presented herein may not be comparable
to similarly titled measures presented by other companies.
Operating net income is a non-GAAP financial measure that (i) reverses
compensation expense related to stock-based awards and deferred
compensation, (ii) excludes the net amortization of liquidity discounts
on loans held and asset-backed securities issued by JMP Credit Advisors
CLO I, (iii) reverses the general loan loss provision taken with regard
to other CLOs, (iv) adjusts for unrealized mark-to-market gains and
losses recorded at Harvest Capital Credit, (v) reverses net unrealized
gains and losses on strategic equity investments and warrants, and (vi)
assumes an effective tax rate. In particular, operating net income
adjusts for:
-
the grant of RSUs and stock options subsequent to the company’s IPO;
-
net deferred compensation, which consists of (a) deferred compensation
awarded at year-end 2012 and reflected in operating net income for
2012 though recognized as a GAAP expense in 2013 and 2014 less (b)
compensation awarded at year-end 2013 and deferred into 2014 and 2015;
-
the non-cash, net amortization of liquidity discounts associated with
JMP Credit Advisors CLO I, due to scheduled contractual principal
repayments, for periods for periods ending on or before June 30, 2013;
-
the non-specific, non-cash loan loss provision recorded with regard to
loans acquired during the period by JMP Credit Advisors CLO II and JMP
Credit Advisors III, which is required by GAAP;
-
unrealized mark-to-market gains or losses on the investment portfolio
at Harvest Capital Credit;
-
unrealized mark-to-market gains or losses on the company’s strategic
equity investments as well as certain warrant positions; and
-
a combined federal, state and local income tax rate of 38%.
Company management has utilized operating net income on a total and per
share basis, adjusted in the manner described above, as an additional
device to aid in understanding and analyzing JMP’s financial results for
the periods presented. Management believes that operating net income
provides useful information by excluding certain items that may not be
representative of the company’s core operating results or core business
activities. Management also believes that operating net income is a
useful measure because it allows for a better evaluation of the
performance of JMP’s ongoing business and facilitates a meaningful
comparison of the company’s results in a given period to those in prior
and future periods.
Reconciliations of JMP Group’s GAAP net income and pro forma net income
to non-GAAP operating net income and pro forma operating net income for
the year ended December 31, 2013, and for the six months ended June 30,
2014, are set forth below.
|
|
Year Ended December 31, 2013
|
|
Six Months Ended June 30, 2014
|
| | |
|
Reorganization
|
| | | |
|
Reorganization
|
| |
(in thousands, except per share amounts) | |
Historical
| |
Transaction
| |
Pro Forma
| |
Historical
| |
Transaction
| |
Pro Forma
|
| | | | | | | | | | | |
|
Income before income tax expense
| |
$17,551
| | |
($750
|
)
| |
$16,801
| | |
$12,129
| | |
($375
|
)
| |
$11,754
| |
Income tax expense
| |
3,950
|
| |
(1,209
|
)
| |
5,159
|
| |
4,146
|
| |
2,469
|
| |
1,677
|
|
Net income
| |
13,601
| | |
(1,959
|
)
| |
11,642
| | |
7,983
| | |
2,094
| | |
10,077
| |
Less: Net income attributable to noncontrolling interests
| |
9,973
|
| |
-
|
| |
9,973
|
| |
790
|
| |
-
|
| |
790
|
|
Net income attributable to JMP Group Inc.
| |
3,628
| | |
(1,959
|
)
| |
1,669
| | |
7,193
| | |
2,094
| | |
9,287
| |
| | | | | | | | | | | |
|
Add back:
| | | | | | | | | | | | |
Income tax expense
| |
3,950
|
| |
1,209
|
| |
5,159
|
| |
4,146
|
| |
(2,469
|
)
| |
1,677
|
|
Income before taxes
| |
7,578
| | |
-
| | |
6,828
| | |
11,339
| | |
-
| | |
10,964
| |
| | | | | | | | | | | |
|
Add back/(subtract):
| | | | | | | | | | | | |
Compensation expense – stock options
| |
920
| | |
-
| | |
920
| | |
899
| | |
-
| | |
899
| |
Compensation expense – post-IPO RSUs
| |
2,823
| | |
-
| | |
2,823
| | |
1,789
| | |
-
| | |
1,789
| |
Compensation expense – deferred compensation
| |
(6,170
|
)
| |
-
| | |
(6,170
|
)
| |
(1,488
|
)
| |
-
| | |
(1,488
|
)
|
Net amortization of liquidity discounts – JMP Credit Advisors CLO I
| |
14,979
| | |
-
| | |
14,979
| | |
-
| | |
-
| | |
-
| |
General loan loss provision – collateralized loan obligations
| |
1,241
| | |
-
| | |
1,241
| | |
925
| | |
-
| | |
925
| |
IPO-related expense – Harvest Capital Credit
| |
450
| | |
-
| | |
450
| | |
-
| | |
-
| | |
-
| |
Unrealized mark-to-market (gain) – Harvest Capital Credit
| |
(162
|
)
| |
-
| | |
(162
|
)
| |
-
| | |
-
| | |
-
| |
Realization of mark-to-market gain – Harvest Capital Credit
| |
772
| | |
-
| | |
772
| | |
-
| | |
-
| | |
-
| |
Unrealized mark-to-market (gain)/loss – strategic equity
investments and warrants
| |
(596
|
)
| |
-
|
| |
(596
|
)
| |
102
|
| |
-
|
| |
102
|
|
Operating income before taxes
| |
21,835
| | |
-
| | |
21,085
| | |
13,566
| | |
-
| | |
13,191
| |
| | | | | | | | | | | |
|
Income tax expense assumed
| |
8,296
|
| |
5,642
|
| |
2,654
|
| |
5,154
|
| |
2,886
|
| |
2,268
|
|
Operating net income
| |
$13,539
|
| |
$5,642
|
| |
$18,431
|
| |
$8,412
|
| |
$2,886
|
| |
$10,923
|
|
| | | | | | | | | | | |
|
Operating net income per share:
| | | | | | | | | | | | |
Basic
| |
$0.61
| | | | |
$0.83
| | |
$0.39
| | | | |
$0.50
| |
Diluted
| |
$0.60
| | | | |
$0.81
| | |
$0.37
| | | | |
$0.48
| |
| | | | | | | | | | | |
|
Weighted average shares outstanding:
| | | | | | | | | | | | |
Basic
| |
22,158
| | | | |
22,158
| | |
21,766
| | | | |
21,766
| |
Diluted
| |
22,650
| | | | |
22,650
| | |
22,778
| | | | |
22,778
| |
About JMP Group
JMP Group Inc. is an investment banking and asset management firm that
provides investment banking, sales and trading, and equity research
services to corporate and institutional clients as well as alternative
asset management products and services to institutional and
high-net-worth investors. JMP Group operates through three subsidiaries:
JMP Securities, Harvest Capital Strategies and JMP Credit Advisors. For
more information, visit www.jmpg.com.
Contacts:
Investor Relations Contact
JMP Group Inc.
Andrew
Palmer, 415-835-8978
apalmer@jmpg.com
or
Media
Relations Contact
Dukas Public Relations
Seth Linden,
212-704-7385
seth@dukaspr.com
Zach
Leibowitz, 212-704-7385
zach@dukaspr.com
Source: JMP Group Inc.
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