Leucadia National, a holding company with investments in a broad array of businesses, is buying the investment banking firm Jefferies Group in an all stock transaction worth roughly $3.7 billion, according to people familiar with the transaction.
The deal is expected to be announced before the open of trading this morning.
Jefferies shareholders will receive 0.81 of a share of Leucadia for each share they own. While Jefferies is selling out for a roughly 23 percent premium to its current stock price, its management team is taking over Leucadia.
As part of the deal, Jefferies management team, led by its long time Chairman and CEO Richard Handler, will run the combined company, said sources close to the deal. Handler will be CEO of the combined company, while Joseph Steinberg, currently Leucadia's president, will become its chairman.
Ian Cumming, who along with Steinberg, has led Leucadia to achieve a 9.4 percent annualized gain in its share price over the last 12 years, will retire as the company's CEO at the close of the deal. Handler is also expected to remain as CEO of Jefferies.
Given the overlap in the shareholder base of both companies and what is already a 28.6 percent ownership stake by Leucadia in Jefferies, the deal is not expected to face any significant shareholder opposition. While Jefferies is selling control at a price below its 52-week high and barely above its book value, it is doing so for stock, giving current shareholders the opportunity to profit from the combination should they choose to remain shareholders (roughly 35 percent of the new company's shares will be held by current Jefferies holders).
Jefferies is expected to be run as a subsidiary of Leucadia, in the same way the company's control of a beef processor, mining company and mortgage servicer, amongst others, are currently treated. One treat for Jefferies may be Leucadia's current deferred tax asset worth $1.4 billion, which will shield future earnings at the investment bank from taxes.
—By CNBC's David Faber