In one of the odder acquisitions we’ve seen recently, diversified holding company Leucadia National Corp. (NYSE: LUK) today announced that it has agreed on a merger with investment bank Jefferies Group Inc. (NYSE: JEF). Leucadia, which already owns 28.6% of Jefferies, will pay for the deal with 0.81 shares of Leucadia stock for each share of Jefferies that it does not already own. That represents a premium of 24% to Friday’s closing price of Jefferies stock. At Friday’s close, Jefferies’ market cap was around $3.01 billion and Leucadia’s was near $5.33 billion.

Jefferies, which nearly collapsed as a result of the MF Global bankruptcy last year, was saved when Leucadia came to the bank’s rescue. Like MF Global, investors were worried about Jefferies’ exposure to European sovereign debt.

Leucadia will spin off its Crimson Wine Group in a tax-free distribution to its current shareholders before the completion of the merger with Jefferies in early 2013. Leucadia said the business has a book value of $197 million.

Jefferies will be Leucadia’s largest business and will continue to operate on its own:

Jefferies, which will be the largest business of Leucadia, will continue to operate as a full-service global investment banking firm in its current form. Jefferies will retain a credit rating that is separate from Leucadia’s. Jefferies’ existing long-term debt will remain outstanding and Jefferies intends to remain an SEC reporting company, regularly filing annual, quarterly, and periodic financial reports.

How long that will last is certainly open to question. Will Jefferies’ bankers be satisfied with getting Leucadia stock as part of their compensation packages? That doesn’t seem likely.

One plausible explanation for the deal is that Leucadia is protecting its already large investment in Jefferies. But is this good money after bad?

Leucadia stock is down about 2.7% this morning at $21.20, in a 52-week range of $19.58 to $29.79. Jefferies stock is up 13.4% at $16.22, in a 52-week range of $9.50 to $19.82.

Paul Ausick

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