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Screenshot of a breaking news alert e-mail from Q2 2017
Lots of news out of FXCM Inc (NYSE:FXCM) last night.
As reported at LeapRate, after US markets closed Thursday at 21:00 GMT, FXCM released its:
- February FX trading volumes (not bad, all-important retail volumes remain above $300 billion),
- Q4 and full year financial results (again not bad, Q4 revenues were actually up a bit over Q3), and
- details of its restructured deal with Leucadia.
After the markets had a moment to digest all that news, FXCM shares tumbled in after hours trading by about 24% (after falling 4% during Thursday’s trading session), settling at $11.00 after closing regular trading at $14.46.
So what disappointed investors?
Clearly, it wasn’t the financial or FX trading volume results, both of those basically fell in line with or even slightly exceeded expectations.
The unveiling of FXCM’s new and improved deal with Leucadia National Corp (NYSE:LUK) seems to be what brought on the wrath of FXCM shareholders, although we will have to wait until Friday’s regular trading session to see the full effect of the restructuring.
As we’ve reported before, what has sent FXCM shares on a bit of a run upward lately has been the hope that FXCM’s $300 million loan from Leucadia – which included terms giving Leucadia most of the upside in FXCM in a future potential sale of the company – would be renegotiated to give FXCM shareholders back some of that upside.
The general speculation was that Leucadia would take a straight up equity position in FXCM, in return for Leucadia giving up its upside rights. That would (the argument goes) give shareholders a reason to buy FXCM shares again, incentivize FXCM management, and still give Leucadia a good amount of upside in the future of the business as FXCM’s share price (hopefully) rose if results warranted.
Well, it didn’t exactly turn out that way.
In fact, the new ‘restructured’ deal seems to have been done solely to provide more upside to FXCM management, with FXCM shareholders actually giving up some of their (small-to-begin-with) upside, for the benefit of keeping FXCM management incentivized and happy. The old versus new & ‘improved’ deal:
|Old Waterfall||Revised Waterfall|
|Amounts due under Credit Agreement||100% Leucadia||100% Leucadia|
|Next $350 million||50% Leucadia
/ 50% FXCM
|45% Leucadia / 45% FXCM /
10.0% FXCM Management
|Next $500 million||90% Leucadia
/ 10% FXCM
|79.2% Leucadia / 8.8% FXCM /
12.0% FXCM Management
|All aggregate amounts thereafter||60% Leucadia
/ 40% FXCM
|51.6% Leucadia / 34.4% FXCM /
14.0% FXCM Management
Oh yeah – a small but seemingly overlooked detail of the announcements made was that FXCM is going to change its name and NYSE ticker symbol as part of the plan to rehabilitate the company’s image. However no hint was given as to what the renaming will be.