The Deal: Gleacher at Decision Time

NEW YORK ( TheStreet) -- At Gleacher & Co.'s annual meeting May 23, shareholders in the investment bank founded by Eric Gleacher face a stark choice: liquidate the company or hand control to investment funds that may not have their best interests at heart.

Competing scenarios have been sketched out by New York-based Gleacher's top shareholder, MatlinPatterson Global Advisers LLC, in a proxy statement filed with the Securities and Exchange Commission on Monday.

Those included continuing the wind down of the businesses­ -- Gleacher already ended the last of its trading business when it laid off about 160 staff earlier this year in closing its fixed-income operation -- and making a distribution of the proceeds to stockholders; trying to find a buyer or other business combination; or re-investing the company's cash reserves of about $45 million in opportunities, such as acquiring additional interests in FA

TechnologyVentures LP, its venture capital investment subsidiary. With another investor, Clinton Group Inc., backing out of running its own slate this week, shareholders on May 23 have few options. MatlinPatterson's director slate is all that's left in the running. If shareholders vote for those nominees, they will be betting that one of those MatlinPatterson's three alternatives will provide a better return than the one-third loss their stakes have suffered from Gleacher's 52-week high of 98 cents per share.

If shareholders withhold their approval, MatlinPatterson could still go ahead with their plans, but it might have to come clean about its valuation methods in order to forestall lawsuits.

Despite setting out the alternatives, however, sources on Wall Street believe that MatlinPatterson has only one goal, in line with founder Eric Gleacher, who retains an 11% stake in the company: to liquidate the company.

MatlinPatterson got its stake in Gleacher through an earlier controlling buy-in of Broadpoint Securities Inc., through which Gleacher went public in a reverse merger. But the private investment firm, known primarily for its focus on distressed companies, moved to minority status when the merger went through -- something it wasn't accustomed to, according to some with knowledge of the company.

Plus, Eric Gleacher also wasn't accustomed to being beholden to public shareholders, a source said.

"Eric regrets the day he ever did a deal with MatlinPatterson and Broadpoint," one person said.

That's why, sources said, MatlinPatterson and Eric Gleacher simply may want to divvy up the cash and go their separate ways. MatlinPatterson would be able to provide some kind of return for its limited partners. Eric Gleacher would be able to start up a new venture, perhaps even regaining the name from what had become an unhappy alliance.

That unhappiness peaked last year when the board's compensation committee decided not to award Eric Gleacher a cash bonus, according to regulatory filings. The prime reason for withholding a bonus was because the investment banking business, which was supposed to be his main focus, hadn't performed, according to people familiar with the company.

"He went ballistic," one person said about Eric Gleacher's reaction to the compensation committee's decision.

Eric Gleacher resigned from his chairman position in January, but his shares are pledged to back MatlinPatterson, as are shareholder Mendon Capital Advisors', according to people with knowledge of the situation.

Liquidating a public company outside of a bankruptcy proceeding is something easier said than done because there are still those pesky 60% shareholders that might want to have a say in what happens to the assets. Although a sale of the company has been bandied about for almost a year and investment bank Stifel, Nicolaus & Co. as well as brokerage firm Sterne Agee Group Inc. were said to be taking closer looks, that alternative is looking unlikely after the company shrank to its present size of about 50 to 60 employees without a trading arm and no investment bankers to speak of.

Eric Gleacher was said to have offered to be the investment banker for his own company, but the independent directors on the board declined his services and formed a special committee. Cahill Gordon & Reindel LLP was brought on as counsel while Houlihan Lokey Inc. was hired to value the assets, according to sources.

A possible alternative to a liquidation emerged this week. Activist hedge fund Clinton Group withdrew its nominees and threw its support behind MatlinPatterson's eight-person slate. But in so doing, Clinton Group also revealed the reason it had backed out: it had been rebuffed by Gleacher's largest shareholders after it offered to buy a bigger block of shares than its previously held 7.7%.

While the letter didn't reveal what price Clinton Group had offered, people familiar with the situation say it was close to the $1 per share that Clinton said should be the floor for what the company is worth. And although the hedge fund also didn't disclose who it approached or how many shares it wanted, sources said Clinton Group was trying to buy most of the top three holders' shares, that of MatlinPatterson with its nearly 29% stake, Eric Gleacher, and the third-biggest shareholder, Mendon Capital, which has almost an 8.2% stake.

At Gleacher's closing price of 70 cents per share on May 10, the last trading day before Clinton Group threw in the towel on the proxy fight, Clinton Group would have spent about $42 million to gain a nearly 49% stake in the company. And that means that the three top investors turned down a premium of about 43%.

The move could signal to shareholders voting May 23 what price they should be looking for if any of the MatlinPatterson alternatives are put into effect.

MatlinPatterson and Eric Gleacher couldn't be reached for comment. Gleacher CEO Tom Hughes declined to comment, except to note about the past attempts to sell the company: "Gleacher, not unlike any other company which has a very large shareholder, needs the support of that shareholder to get any deal done."

Written by Paula Schaap in New York

If you liked this article you might like

Gleacher Faces Delisting Amid Wall Street Survival Scramble

Gleacher Faces Delisting Amid Wall Street Survival Scramble

5 Stocks Setting Up to Break Out

5 Stocks Setting Up to Break Out

Advantest - Upgrades & Downgrades

Advantest - Upgrades & Downgrades

3 Beaten-Down Small-Caps That May Soar

3 Beaten-Down Small-Caps That May Soar