Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 8-K/A
 
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

 Date of Report (Date of earliest event reported): June 1, 2017

  
 
COWEN INC.
(Exact Name of Registrant as Specified in Charter)
 

 
Delaware
 
001-34516
 
27-0423711
(State or Other Jurisdiction of Incorporation)
 
(Commission File Number)
 
(I.R.S. Employer
Identification No.)

 
599 Lexington Avenue
New York, NY 10022
(Address of Principal Executive Offices and Zip Code)
 
Registrant’s telephone number, including area code: (212) 845-7900
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
 
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)


 
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))



 
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))



 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o






EXPLANATORY NOTE
 
On June 5, 2017, Cowen Inc. (the “Company”) filed, with the Securities and Exchange Commission, a Current Report on Form 8-K (the “Initial Form 8-K”) regarding the closing of its acquisition of all of the issued and outstanding equity securities of Convergex Group, Inc. (“Convergex Group”) on June 1, 2017 pursuant to a Securities Purchase Agreement between the Company and Convergex Group dated as of April 2, 2017.
    
On August 17, 2017, the Company filed, with the Securities and Exchange Commission, a Current Report on Form 8-K/A ("Amendment No. 1") amending Item 9.01 of the Initial Form 8-K.

This Current Report on Form 8-K/A ("Amendment No. 2") is being filed to present certain updated unaudited pro forma combined financial information which is filed as an exhibit hereto, in accordance with the requirements of Item 9.01 of Form 8-K.

Item 9.01.  Financial Statements and Exhibits
 
(a) Pro Forma Financial Information.
 
The unaudited pro forma condensed combined statement of operations and explanatory notes relating to the acquisition and related transactions for the nine month period ended September 30, 2017 is attached as Exhibit 99.1 to this Amendment No. 2.
 
(b) Exhibits. The following exhibit is filed herewith:

Exhibit No.
 
Description
 





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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
 
 
COWEN INC.
 
 
 
 
 
By:
/s/ STEPHEN A. LASOTA
 
 
 
 
 
Name:
Stephen A. Lasota
 
 
Date:
November 30, 2017
 
Title:
Chief Financial Officer (principal financial officer and principal accounting officer)
 


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Exhibit
Exhibit 99.1

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

The accompanying unaudited pro forma condensed combined statement of operations and explanatory notes presented below for the nine months ended September 30, 2017 have been prepared by Cowen Inc. (the “Company”) to update the previously filed pro forma condensed combined statement of operations and related explanatory notes for the three months ended March 31, 2017 as filed on August 17, 2017 in Item 9.01 of the Current Report on Form 8-K/A which reflected its completed acquisition of Convergex Group, Inc (“Convergex Group”), as described in Item 2.01 of the Current Report on Form 8-K filed on June 5, 2017. The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2017 is presented as if the acquisition of Convergex had occurred on January 1, 2017, the first day of the period presented.
      
The unaudited pro forma condensed combined statement of operations has been prepared based on available information, using assumptions that the Company’s management believes are reasonable. The unaudited pro forma condensed combined statement of operations is provided for illustrative purposes only and is not necessarily indicative of the results of operations that would have been achieved had the transaction been consummated as of January 1, 2017, nor are they necessarily indicative of future results.  The unaudited pro forma condensed combined statement of operations has been adjusted to reflect factually supportable items that are directly attributable to the acquisition and expected to have a continuing impact on combined results of operations. The unaudited pro forma condensed combined statement of operations do not reflect any operating efficiencies and associated cost savings that the Company may achieve with respect to the consolidated companies. The adjustments included in these unaudited pro forma condensed combined statement of operations are preliminary and may be revised.
 
The assumptions used and adjustments made in preparing the unaudited pro forma condensed combined statement of of operations are described in the notes herein, and should be read in conjunction with the Company's historical consolidated financial statements and accompanying notes in the Company's quarterly report on Form 10-Q for the nine months ended September 30, 2017.









Cowen Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
(dollars in thousands, except per share data)
For the nine months ended September 30, 2017
 
 
Cowen Inc.
 
Convergex Group, LLC (h)
 
Pro Forma Adjustments
 
Pro Forma Total
 
Revenues
 
 
 
 
 
 
 
 
Investment banking
$
158,082

 
$

 
$

 
$
158,082

 
Brokerage
153,738

 
110,588

 

 
264,326

 
Management fees
25,587

 

 

 
25,587

 
Incentive income
6,217

 

 

 
6,217

 
Interest and dividends
17,140

 
17,270

 

 
34,410

 
Reimbursement from affiliates
2,631

 

 

 
2,631

 
Aircraft lease revenue
3,036

 

 

 
3,036

 
Reinsurance premiums
21,957

 

 

 
21,957

 
Other revenues
3,008

 
5,289

 

 
8,297

 
Consolidated Funds
 
 
 
 

 

 
Interest and dividends
4,253

 

 

 
4,253

 
Other revenues
498

 

 

 
498

 
Total revenues
396,147

 
133,147

 

 
529,294

 
Expenses
 
 
 
 
 
 
 
 
Employee compensation and benefits
259,633

 
67,076

 
1,365

(a)
328,074

 
Floor brokerage and trade execution
25,426

 
43,610

 

 
69,036

 
Interest and dividends
31,231

 
9,323

 

 
40,554

 
Professional, advisory and other fees
21,504

 
3,327

 
(4,767
)
(b)
20,064

 
Service fees
7,334

 
2,593

 

 
9,927

 
Communications
15,116

 
19,387

 

 
34,503

 
Occupancy and equipment
22,785

 
6,757

 
(1,447
)
(c)
28,095

 
Depreciation and amortization
8,488

 
4,806

 
(2,684
)
(d)
10,610

 
Client services and business development
20,185

 
1,676

 

 
21,861

 
Reinsurance claims, commissions and amortization of deferred acquisition costs
20,610

 

 

 
20,610

 
Restructuring costs
8,600

 
345

 
(8,763
)
(e)
182

 
Other expenses
8,585

 
5,691

 
(58
)
(b)
14,218

 
Consolidated Funds
 
 
 
 
 
 

 
Interest and dividends
7,325

 

 

 
7,325

 
Professional, advisory and other fees
901

 

 

 
901

 
Floor brokerage and trade execution
278

 

 

 
278

 
Other expenses
919

 

 

 
919

 
Total expenses
458,920

 
164,591

 
(16,354
)
 
607,157

 
Other income (loss)
 
 
 
 
 
 
 
 
Net gains (losses) on securities, derivatives and other investments
63,009

 
92

 

 
63,101

 
Bargain purchase gain
7,946

 

 
(7,946
)
(e)

 
Consolidated Funds
 
 
 
 
 
 
 
 
Net realized and unrealized gains (losses) on investments and other transactions
48,154

 

 

 
48,154

 
Net realized and unrealized gains (losses) on derivatives
5,405

 

 

 
5,405

 
Net gains (losses) on foreign currency transactions
(299
)
 

 

 
(299
)
 
Total other income (loss)
124,215

 
92

 
(7,946
)
 
116,361

 
 
 
 
 
 
 
 
 
 

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Cowen Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
(dollars in thousands, except per share data)
For the nine months ended September 30, 2017
 
(Continued)
 
 
 
 
 
 
 
 
 
Cowen Inc.
 
Convergex Group, LLC
 
Pro Forma Adjustments
 
Pro Forma Total
 
Income (loss) before income taxes
61,442

 
(31,352
)
 
8,408

 
38,498

 
Income tax expense (benefit)
5,676

 
(1,664
)
 
4,149

(f)
8,161

 
Net income (loss)
55,766

 
(29,688
)
 
4,259

 
30,337

 
Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and funds
35,412

 

 

 
35,412

 
Net income (loss) attributable to Cowen Inc.
20,354

 
(29,688
)
 
4,259

 
(5,075
)
 
Preferred stock dividends
5,094

 

 

 
5,094

 
Net income (loss) attributable to Cowen Inc. common stockholders
$
15,260

 
$
(29,688
)
 
$
4,259

 
$
(10,169
)
 
Weighted average common shares outstanding:
 

 
 

 
 
 
 

 
Basic
29,004

 
 
 
1,795

 
30,799

(g)
Diluted
30,011

 
 
 
788

 
30,799

(g)
Earnings (loss) per share:
 
 
 
 
 
 
 
 
Basic
$
0.53

 


 

 
$
(0.33
)
 
Diluted
$
0.51

 


 

 
$
(0.33
)
 
 
The accompanying notes are an integral part of these unaudited pro forma condensed combined statement of operations.


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Cowen Inc.
Notes to Unaudited Pro Forma Condensed Combined Statement of Operations

1. Description of the acquisition
On April 2, 2017, the Company, through its wholly owned subsidiary Cowen CV Acquisition LLC, entered into a securities purchase agreement with, among others, Convergex Holdings LLC to acquire all the outstanding interests in Convergex Group, LLC ("Convergex Group") (subsequently renamed to Cowen Execution Holdco LLC), a provider of agency based execution services and trading technology to middle market institutional investors and broker-dealers (the "Acquisition"). Convergex Group's operations were primarily conducted through two U.S. Securities Exchange Commission ("SEC") registered broker-dealers, Convergex Execution Services LLC (subsequently renamed to Cowen Execution Services LLC) ("Cowen Execution") and Westminster Research Associates LLC ("Westminster Research") and also Convergex Limited (subsequently renamed to Cowen Execution Services Limited) ("Cowen Execution Ltd"), which is based in the United Kingdom and regulated by the Financial Conduct Authority ("FCA"). The purchase price was paid approximately 50% in cash and 50% in Cowen Inc. Class A common stock.
The acquisition was consummated effective as of June 1, 2017. The adjusted aggregate estimated purchase price was $96.2 million, which was determined based on closing date tangible book value of Convergex Group, less certain closing adjustments. A portion of the preliminary purchase price was deposited into escrow as a reserve for any future claims against the sellers of Convergex Group. On closing, the Company paid cash of $48.6 million and issued 3,162,278 of the Company’s Class A common stock determined based on the 30-day volume-weighted average price per share of $15.05 as of May 30, 2017.

2. Basis of Presentation 

The unaudited pro forma condensed combined statement of operations was prepared using the acquisition method of accounting in accordance with generally accepted accounting principles in the United States ("GAAP") and was derived based on the historical financial statements of the Company and the financial statements of Convergex Group after giving effect to the Acquisition and after applying the reclassifications and adjustments described in the accompanying notes to the unaudited pro forma condensed combined statement of operations. The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2017 is presented as if the acquisition of Convergex had occurred on January 1, 2017, the first day of the period presented.
The unaudited pro forma condensed combined statement of operations is presented for information purposes only and is not intended to reflect the results of operations of the combined company that would have resulted had the Acquisition been effective during the period presented or the results that may be obtained by the combined company in the future.
Additionally, the unaudited pro forma condensed combined statement of operations should be read in conjunction with the Company’s historical consolidated financial statements and accompanying notes in the Company’s quarterly report on Form 10-Q for the nine months ended September 30, 2017.

3. Net Assets Acquired
The Company is currently in the process of finalizing its purchase price allocation of Convergex Group; therefore, the purchase price adjustments and allocation of the purchase price to the net assets acquired, as filed in our Quarterly Report on Form 10-Q for the period ended September 30, 2017, are preliminary and subject to measurement period adjustments and will be finalized as necessary, up to one year after the acquisition's closing date, as the information becomes available. The adjusted aggregate estimated purchase price was $96.2 million, which was determined based on closing date tangible book value of Convergex Group, less certain closing adjustments. A portion of the preliminary purchase price was deposited into escrow as a reserve for any future claims against the sellers of Convergex Group. On closing, the Company paid cash of $48.6 million and issued 3,162,278 of the Company’s Class A common stock determined based on the 30-day volume-weighted average price per share of $15.05 as of May 30, 2017.
4. Pro Forma Adjustments and Assumptions

The following is a summary of pro forma adjustments reflected in the Unaudited Pro Forma Condensed Combined Statement of Operations for the nine month period ended September 30, 2017.

(a) Reflects an acceleration of vested deferred compensation expense, pre-acquisition severance, and other compensation issued to certain Convergex Group employees.


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(b) Represents the elimination of nonrecurring charges included in the Company's historical results of operations which resulted directly from the acquisition. These amounts primarily related to legal, professional and other fees.

(c) Reflects the adjustment to amortization, over the remaining lease term of 25 months using the straight line method, of the fair value of lease obligation related to Convergex Group's real estate leases that were at higher than market rates at the closing date.

(d) Reflects the reduction in depreciation and amortization expense, using the straight line method, related to the fair value of fixed and intangible assets recognized in connection with the acquisition. The estimated useful lives of the fixed assets range from 2 to 5 years. The estimated useful lives of the intangible assets range from 6 months to 9 years.

(e) Reflects the exclusion of the bargain purchase gain and restructuring costs which are non recurring charges or credits.

(f) Represents the tax impact of the Pro Forma Adjustments which was primarily offset by a valuation allowance adjustment that was determined based on Cowen's and Convergex Group's historical valuation allowance positions.

(g) As the unaudited pro forma condensed combined statement of operations assume that the acquisition occurred as of the beginning of the period presented, all 3,162,278 shares of Cowen Class A common stock that were issued to the sellers of Convergex Group are assumed to be outstanding for the entire period for the unaudited pro forma net loss per share calculation of the combined company. An adjustment has been made to the weighted average shares outstanding since, due to the pro forma combined losses, the outstanding restricted stock and stock options would be anti-dilutive.

(h) Subsequent to the acquisition, certain of Convergex Group's businesses were integrated within the broker-dealer businesses of the Company and therefore are reflected in the Cowen Inc. column for the nine months ended September 30, 2017.



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