Hilltop proposes to acquire SWS Group for $7 per share

Dallas-based Hilltop Holdings has made a bid to broker-dealer SWS Group to buy all the shares it currently does not own for $7 per share. The deal, if approved, would be paid in 50 percent cash and 50 percent Hilltop common stock. The transaction would also require the approval of Oak Hill Capital Partners, with whom Hilltop co-invested $50 million apiece in SWS in 2011. Currently, Hilltop owns 24 percent of SWS common stock. Stephens is advising Hilltop on the proposal.

PRESS RELEASE

DALLAS–(BUSINESS WIRE)–Hilltop Holdings Inc. (NYSE: HTH) submitted a written proposal to the SWS Group, Inc. Board of Directors to acquire all of the outstanding shares of SWS that it does not already own for $7.00 per share in 50% cash and 50% Hilltop common stock.
In 2011, Hilltop invested $50 million in SWS in the form of a senior unsecured loan. At the time of Hilltop’s investment, Hilltop’s Chairman, Gerald J. Ford, joined the Board of Directors of SWS and Hilltop’s President and Chief Executive Officer, Jeremy B. Ford, became a non-voting observer to the SWS board. In conjunction with Hilltop’s investment in SWS, SWS issued Hilltop a warrant to purchase 8,695,652 common shares of SWS at an exercise price of $5.75 per share. Hilltop currently beneficially owns 24% of SWS common stock, inclusive of the warrant.
Mr. Gerald J. Ford said, “We believe that Hilltop’s and SWS’s businesses are highly complementary, and that the proposed transaction is a compelling opportunity for SWS’s stockholders, as well as its employees and customers. The transaction represents a premium to market for SWS stockholders, while also enabling stockholders to participate in the continued growth of the combined enterprise. In addition, we believe it will create benefits from being part of a larger organization that is strongly capitalized and positioned to compete on an expanded scale.”
Hilltop management has a track record of successfully executing acquisitions and integrating new assets, operations and personnel, including its acquisition of PlainsCapital Corporation completed in December 2012 and the FDIC-assisted acquisition of First National Bank of Edinburg in September 2013. Hilltop currently has over $9 billion in assets, $1.2 billion of equity and approximately 4,750 employees.
Hilltop is prepared to expeditiously negotiate a definitive acquisition agreement with the SWS Board of Directors. Stephens Inc. is serving as financial advisor to Hilltop and Wachtell, Lipton, Rosen & Katz is serving as legal counsel to Hilltop.
The letter that Hilltop sent today to the SWS Board of Directors follows:
Dear Jim,
It has been a pleasure to work with SWS Group, Inc. since Hilltop Holdings Inc. made its investment in the company in July 2011. We sincerely appreciate our relationship and have genuine respect for your employees and board. Therefore, we are excited to communicate our interest in merging SWS into Hilltop and outline the significant terms of our proposal. As our businesses are highly complementary, we believe that a combination will generate significant benefits for both of our customers, employees and stockholders.
Hilltop, a public financial holding company, currently has over $9 billion in assets, $1.2 billion of equity, approximately 4,750 employees and significant excess capital. Through our operating companies, we have four business segments—banking, mortgage origination, financial advisory and insurance. Hilltop is led by its Chairman, Gerald J. Ford, who has an established track record of acquiring financial institutions and creating substantial stockholder value. Our 24% beneficial ownership interest in SWS is important to us, as it prompted our desire to build a premier Texas-based bank and prominent diversified financial services company. Since, Hilltop has been very active, completing the acquisition of PlainsCapital Corporation in November 2012 and the FDIC-assisted acquisition of First National Bank of Edinburg in September 2013.
We believe that a combination would provide strategic benefits to both SWS and Hilltop. The merger of First Southwest and Southwest Securities would create the dominant Texas-based broker/dealer with significant strengths in municipal finance and clearing. The combined broker/dealer will be well positioned to compete and grow on an expanded platform. Upon merging the two banks, PlainsCapital Bank would become the 4th largest Texas-based bank by deposits. Hilltop’s capital position would maintain the strength of the combined bank and provide opportunities for loan growth. Additionally, SWS stockholders would benefit from Hilltop’s diversified and profitable operating segments.
Our proposal is to acquire all of the outstanding SWS common stock that Hilltop does not already own for $7.00 per share in 50% cash and 50% stock. We believe that our proposal offers compelling value for SWS stockholders, as it provides a premium to market, immediate and certain value with the cash consideration and the opportunity to participate in the success of the combined company through our stock.
Our proposal is subject to the approval of the SWS board of directors, the execution of a definitive agreement and subsequent approval by SWS stockholders. There will not be a financing contingency or any required approvals by Hilltop stockholders. Our transaction, however, will be further subject to customary and usual closing conditions, including obtaining required approvals from regulators. Due to our existing investment, we do not anticipate significant due diligence or any obstacles in consummating a mutually beneficial transaction promptly.
The proposed transaction also will require the consent of Oak Hill Capital Partners pursuant to existing debt and related agreements with SWS. Accordingly, any transaction will be subject to such consent and the restructuring of the existing debt and related agreements or, in the alternative, the exercise of their warrant. We intend to commence those discussions with Oak Hill immediately.
Consistent with our obligations under the U.S. federal securities laws, this letter will become publicly available when we file it with an amendment to our Schedule 13D.
We look forward to further discussing our proposal with you, and hope to expeditiously enter into a definitive agreement.
ABOUT HILLTOP
Hilltop is a Dallas-based financial holding company. Through its wholly owned subsidiary, PlainsCapital Corporation, a regional commercial banking franchise, it has three operating subsidiaries: PlainsCapital Bank, PrimeLending, and First Southwest Company. Through Hilltop’s other wholly owned subsidiary, National Lloyds Corporation, it provides property and casualty insurance through two insurance companies, National Lloyds Insurance Company and American Summit Insurance Company. At September 30, 2013, Hilltop employed approximately 4,750 people and operated approximately 400 locations in 45 states. Hilltop’s common stock is listed on the New York Stock Exchange under the symbol “HTH.” Find more information at hilltop-holdings.com and plainscapital.com.