FXCM’s outstanding debt to Leucadia at $67 million at the end of Q3 2017

Maria Nikolova

The repayment of the loan extended by Leucadia to FXCM continues, with Leucadia having received $349 million in cash from principal, interest and fees through September 30, 2017.

Many of you must be aware that Leucadia National Corp. (NYSE:LUK) is holding an Investor Meeting later today. The company has filed some documents related to this meeting with the United States Securities and Exchange Commission (SEC), with our focus on any information about FXCM that its Investor Meeting presentation may include.

In the presentation, Leucadia says that through September 30, 2017, it has received total cash of $349 million from principal, interest and fees (including $61 million in the third quarter), with $67 million of the original $300 million loan still outstanding which is accruing a 20.5% annual interest.

The book value of Leucadia’s interest in FXCM was $303 million at June 30, 2017.

The strategic priorities for FXCM include efforts to continue to repay the loan provided by Leucadia, after having sold its stake in FastMatch earlier this year to Euronext. Lucid Markets continues to be marketed for sale. Interestingly, there is no mention in this respect of V3 Markets.

Meanwhile, the terms of the Leucadia’s loan extended to FXCM after the January 15, 2015 events have attracted the attention of the Delaware Court of Chancery. In a Memorandum Opinion issued on September 29, 2017, Vice Chancellor Sam Glasscock III said entire fairness review is appropriate with regard to the Leucadia deal.

The Court is examining a case brought by a stockholder of FXCM Inc, which is now known as Global Brokerage Inc (NASDAQ:GLBR). The questions before the Court include whether the Leucadia loan represented a waste of assets and whether the terms of the transaction were unfair to the broker.

The Court said that the plaintiff played down the urgency with which the FXCM Board had to act when having to decide on the potential deal, but the Court supported a review of the Leucadia transaction.

“I have found it reasonably conceivable that entire fairness review is invoked here. Under that standard of review, it is appropriate that I examine the transaction with a full record”, said Vice Chancellor Glasscock.

The “entire fairness standard” is triggered in cases where a majority of the directors approving the transaction are interested or where a majority stockholder stands on both sides of the transaction. When the entire fairness standard is applied, the corporate board has the burden to demonstrate that the transaction is inherently fair to the stockholders by demonstrating both fair dealing and fair price.

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