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April 1, 1998

Jefferies Group to Spin-Off ITG

By Staff Reports

Jefferies Group is spinning-off its New York equity trading and research firm, Investment Technology Group (ITG), under a plan to separate it from its affiliated Los Angeles-based investment bank, Jefferies & Company.

Jefferies Group is currently the holding company of Jefferies & Company, and owns 82.3 percent of ITG.

Under the plan, Jefferies Group shareholders will own 100 percent of Jefferies & Company under a new holding company, Jefco. In a tax-free transaction, the remaining Jefferies Group assets, 15 million shares, or 82.3 percent of ITG, will be merged with a new holding company, ITG Group.

All Jefferies & Company's shares will be distributed tax free to Jefferies Group shareholders. Currently, public shareholders control 17.7 percent of ITG. After the spin-off, Jefferies Group will transfer its 82.3 percent ownership in public shares.

"This spin-off allows us to give stock compensation back to our employees, based purely on our own performance," said Jefferies & Company President Michael L. Klowden. "ITG will be free of the constraints of Jefferies Group holding the majority of its stock. It will be free to make strategic acquisitions with its stock."

Klowden does not expect the spin-off to have much impact on the day-to-day operations of either unit.

"ITG has really always functioned on its own," he said. "Jefferies Group is relinquishing control of ITG, allowing it to be free of all constraints."

Klowden said the split will also allow Jefferies & Company to increase regulatory capital to support their underwriting capabilities. In 1997, the firm was the lead or co-manager of 55 high-yield offerings, and 35 equity offerings.

The spin-off is awaiting approval by the Internal Revenue Service because of the tax-free nature of the split and stock redistribution. Jefferies Group has retained global investment bank J.P. Morgan & Co. for the transaction.