Note 4.

Leucadia Merger and Related Transactions

Merger Transaction

On March 1, 2013, Jefferies Group LLC entered into a merger transaction with Leucadia and became a wholly-owned subsidiary of Leucadia as described in Note 1 Organization and Basis of Presentation. Each share of Jefferies Group Inc.’s common stock outstanding was converted into common shares of Leucadia at an Exchange Ratio of 0.81 Leucadia common shares for one share of Jefferies Group, Inc. (the “Exchange Ratio”). Leucadia exchanged Jefferies Group, Inc.’s $125.0 million 3.25% Series A-1 Convertible Cumulative Preferred Stock for a new series of Leucadia $125.0 million 3.25% Cumulative Convertible Preferred Shares. In addition, each restricted share and restricted stock unit of Jefferies Group, Inc. common stock was converted at the Exchange Ratio, into an equivalent award of shares of Leucadia, with all such awards for Leucadia shares subject to the same terms and conditions, including, without limitation, vesting and, in the case of performance-based restricted stock units, performance being measured at existing targets.

Leucadia did not assume or guarantee any of our outstanding debt securities, but our 3.875% Convertible senior Debentures due 2029 with an aggregate principal amount of $345.0 million are now convertible into common shares of Leucadia. Other than the conversion into Leucadia common shares, the terms of the debenture remain the same.

The merger resulted in a change in our ownership and was recorded under the acquisition method of accounting by Leucadia and pushed-down to us by allocating the total purchase consideration of $4.8 billion to the cost of the assets acquired, including intangible assets, and liabilities assumed based on their estimated fair values at the date of the merger. The excess of the total purchase price over the fair value of assets acquired and the liabilities assumed is recorded as goodwill. The goodwill arising from the merger consists largely of our commercial potential and the value of our assembled workforce.

In connection with the merger, we recognized $9.0 million and $2.1 million in transaction costs during the three months ended May 31, 2013 and February 28, 2013, respectively.

The summary computation of the purchase price and the fair values assigned to the assets and liabilities are presented as follows (in thousands except share amounts):


Purchase Price

Jefferies common stock outstanding		205,368,031
Less: Jefferies common stock owned by Leucadia		(58,006,024	)

Jefferies common stock acquired by Leucadia		147,362,007
Exchange ratio		0.81

Leucadia’s shares issued (excluding for Jefferies shares held by Leucadia)		119,363,226
Less: restricted shares issued for share-base payment awards (1)		(6,894,856	)

Leucadia’s shares issued, excluding share-based payment awards		112,468,370
Closing price of Leucadia’s common stock (2)	$	26.90

Fair value of common shares acquired by Leucadia		3,025,399
Fair value of 3.25% cumulative convertible preferred shares (3)		125,000
Fair value of shares-based payment awards (4)		343,811
Fair value of Jefferies shares owned by Leucadia (5)		1,259,891

Total purchase price	$	4,754,101

(1)	Represents shares of restricted stock included in Jefferies common stock outstanding that contained a future service requirement as of March 1, 2013.

(2)	The value of the shares of common stock exchanged with Jefferies shareholders was based upon the closing price of Leucadia’s common stock at February 28, 2013, the last trading day prior to the date of acquisition.

(3)	Represents Leucadia’s 3.25% Cumulative Convertible Preferred Shares issued in exchange for Jefferies Group, Inc.’s 3.25% Series A-1 Convertible Cumulative Preferred Stock.

(4)

The fair value of share-based payment awards is calculated in accordance with ASC 718, Compensation – Stock Compensation. Share-based payment awards attributable to pre-combination service are included as part of the total purchase price. Share-based payment awards attributable to pre-combination service is estimated based on the ratio of the pre-combination service performed to the original service period of the award.

(5)	The fair value of Jefferies shares owned by Leucadia was based upon a price of $21.72, the closing price of Jefferies common stock at February 28, 2013.


Assets acquired:
Cash and cash equivalents	$	3,017,958
Cash and securities segregated		3,728,742
Financial instruments owned, at fair value		16,413,535
Investments in managed funds		59,976
Loans to and investments in related parties		766,893
Securities borrowed		5,315,488
Securities purchased under agreements to resell		3,578,366
Securities received as collateral		25,338
Receivables:
Brokers, dealers and clearing organizations		2,444,085
Customers		1,045,251
Fees, interest and other		225,555
Premises and equipment		192,603
Indefinite-lived intangible exchange memberships and licenses (1)		16,131
Finite-lived intangible customer relationships (1)(2)		136,002
Finite-lived trade name (1)(3)		131,299
Other assets		943,828

Total assets	$	38,041,050


Liabilities assumed:
Short-term borrowings	$	100,000
Financial instruments sold, not yet purchased, at fair value		9,766,876
Securities loaned		1,902,687
Securities sold under agreements to repurchase		7,976,492
Other secured financings		122,294
Obl. to return securities received as collateral		25,338
Payables:
Brokers, dealers and clearing organizations		1,787,055
Customers		5,450,781
Accrued expenses and other liabilities		788,647
Long-term debt		6,353,264
Mandatorily redeemable preferred interests		358,951

Total liabilities	$	34,632,385


Noncontrolling interests		356,180

Fair value of net assets acquired, excluding goodwill	$	3,052,485



Goodwill	$	1,701,616

(1)	Intangible assets are recorded within Other assets on the Consolidated Statements of Financial Condition.

(2)	The fair value of the finite-lived customer relationships will be amortized on a straight line basis over a weighted average useful life of approximately 14.4 years.

(3)	The fair value of the finite-lived trade name will be amortized on a straight line basis over a useful life of 35 years.

Intangible assets, not including goodwill, totaling approximately $283.4 million were identified and recognized as part of the acquisition accounting. The goodwill of $1.7 billion resulting from the Merger Transaction is not deductible for tax purposes.

Reorganization of Jefferies High Yield Holdings, LLC

On March 1, 2013, we commenced a reorganization of our high yield joint venture with Leucadia, conducted through Jefferies High Yield Holdings, LLC (“JHYH”) (the parent of Jefferies High Yield Trading, LLC (our high yield trading broker-dealer)). On March 1, 2013, we redeemed the outstanding third party noncontrolling interests in JHYH of $347.6 million. On March 31, 2013, Leucadia contributed its mandatorily redeemable preferred interests in JHYH of $362.3 million to Jefferies Group LLC as member’s equity. We subsequently redeemed the mandatorily redeemable preferred interests in JHYH on April 1, 2013. In addition, on April 1, 2013, our high yield trading broker-dealer was merged with Jefferies LLC (our securities U.S. broker-dealer).