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.
Investor Relations ContactJMP Group Inc.Andrew Palmer,
415-835-8978apalmer@jmpg.comorMedia Relations ContactDukas
Public RelationsSeth Linden, 212-704-7385seth@dukaspr.comZach
Leibowitz, 212-704-7385zach@dukaspr.com
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