A buyout group lead by former Goldman Sachs & Co banker Christopher Flowers dropped its US$768 million bid on Monday for beleaguered Refco Inc's futures brokerage business, as competition for the unit heated up.
The change of heart came after US bankruptcy judge Robert Drain indicated at a hearing that he would approve bidding procedures for an auction of the futures business only if it included a significantly lower breakup fee of US$5 million for the Flowers group and expense reimbursement of only US$1 million for the buyout group.
James Sprayregen, a lawyer for Flowers, told the court that the group had already spent "far more than that'' on its bid.
"With regret, we're not able to proceed," Sprayregen said.
Sprayregen and Flowers both declined to comment after the hearing.
Earlier Monday, the Flowers group indicated it would agree to a US$15 million breakup fee and a reimbursement cap of US$5 million, down from a fee equal to 2.8 percent of the purchase price of any rival winning bid.
The decision by the Flowers group leaves Refco without a "stalking horse" in its effort to sell its regulated futures business.
However, a new lead bidder could quickly emerge as five new groups indicated on Monday they had an interest in bidding for all or part of the futures business.
Rival futures brokerage firm Man Financial Marathon Asset Management LLC and DIGL Inc, a Delaware corporation formed by Dubai Investment Group LLC and Yucaipa Cos LLC, all spelled out their interest in filings with the bankruptcy court in Manhattan.
Merrill Lynch & Co lawyer James Bromley also said the bank has lodged a bid joined by Warburg Pincus LLC and Susquehanna, but gave no details. And a lawyer for Apollo Management, led by ex-Drexel banker Leon Black, said it too may bid.
DIGL's bid would have topped the Flowers bid by US$60 million. Interactive Brokers, an options trading and brokerage firm that previously bid on the unit, lodged a new bid Monday that would top the DIGL offer by US$30 million.
Earlier Monday, potential bidders had agreed with Refco for the auction to be Nov. 9. with bids due five days before that.
Refco and 23 affiliates filed for bankruptcy Oct. 17, shortly after Phillip Bennett, its president and chief executive, was arrested and charged with securities fraud in connection with what prosecutors said was a scheme to hide US$430 million in debt owed to Refco by a separate company he controlled.
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