Private equity firm J.C. Flowers is out, and a slew of hedge funds may be in, as the growing scrum around embattled derivatives broker Refco took several frenzied turns.
With other bidders -- as many as 50, according to The New York Times -- and Refco creditors crying foul at the breakup fee and other provisions negotiated by Refco and the Flowers-led investor group, Manhattan Bankruptcy Court Judge Robert D. Drain eliminated Flowers' option to bid on other Refco units, and asked Flowers and Refco to cut the amount in potential fees due Flowers. But the new deal still raised hackles among creditors other bidders, and Drain said he would approve only a $5 million breakup fee, one-third of the new Flowers-Refco proposal.
In a statement, Flowers said it is "not prepared to commit at this time" to the purchase, but has "not made a decision on whether we will participate in the bankruptcy auction," which will be run by Greenhill & Co. Judge Drain set a Nov. 4 deadline for bids before the auction.
The departure of Refco's preferred partner leaves it wide open to a growing crowd of potential bidders. The current high bid, of $857.9 million, belongs to Connecticut's The Interactive Brokers Group, followed by a $828 million offer from an investor group led by the government of Dubai. A group led by Merrill Lynch, and including Warburg Pincus and Susquehanna International Group, said it may bid. Hedge funds Man Group and Marathon Asset Management have also expressed interest in Refco, as has p.e. firm Apollo Management.
It remains to be seen how many of the 40 to 50 bidders that Refco attorney J. Gregory Milmoe met with yesterday will submit a bid, but Interactive has a warning for circling alternatives firms. "It's an error to look at this as a private equity deal," CEO Thomas Peterffy told the Times. "You need experience in the commodities business, if not the technology as well."