Jefferies surges 10% as SMFG explores potential takeover
Japanese banking giant, which already holds 20% stake, reportedly prepares acquisition team
Jefferies Financial Group shares surged as much as 10% in pre-market trading on Tuesday after reports emerged that Japan's Sumitomo Mitsui Financial Group is preparing for a potential takeover of the embattled US investment bank. The report, first published by the Financial Times, sent the New York-based firm's stock sharply higher after a year of steep declines.
SMFG, Japan's second-largest banking group, has assembled a small team to prepare for a possible acquisition, anticipating an opportunity if Jefferies' share price continues to fall or if management proves receptive to a deal, according to the Financial Times. However, any move by the Japanese lender is not considered imminent, and there is no certainty that Jefferies executives would be willing to sell at what the newspaper described as a "depressed" valuation.
The pre-market rally comes just one day before Jefferies is scheduled to report quarterly earnings after the market close on Wednesday. Analysts expect the investment bank to post earnings of $1.15 per share on revenue of $2.02 billion for the first quarter of fiscal 2026, according to consensus estimates compiled by MarketBeat.
SMFG already holds a significant position in Jefferies. The Japanese lender first acquired nearly 5% of the company in 2021 and expanded its stake to up to 20% in September 2025 through a $912 million investment. That deepened partnership also included the establishment of a joint venture in Japan for their wholesale equities businesses and approximately $2.5 billion in new credit facilities from SMBC, SMFG's banking arm, to Jefferies.
Jefferies' shares have fallen more than 36% this year, extending losses that began in 2025 when the company's Leucadia Asset Management arm became entangled in the bankruptcy of US auto parts supplier First Brands. That unit was owed approximately $715 million in receivables, and investors have sued Jefferies over allegations of being defrauded into investing in a fund connected to First Brands. The company has faced scrutiny over its lending standards and risk appetite in the aftermath.
Despite these challenges, analysts remain broadly optimistic about Jefferies' prospects. Of the six analysts covering the stock, four rate it a buy or strong buy, while two recommend hold, according to market data. The consensus 12-month price target stands at $59.33, representing roughly 50% upside from current levels around $39.55.
The potential takeover would mark a significant expansion of SMFG's US footprint and underscore Japanese banks' growing appetite for cross-border acquisitions amid consolidation in global investment banking. SMFG's move comes as other Asian financial institutions, including Singapore's Temasek, continue to deploy capital in western financial markets.
For Jefferies, a potential takeover could provide stability following a period of market volatility and legal challenges. The company reported strong fourth-quarter 2025 results in January, with diluted earnings per share of $0.87 (adjusted $0.96) beating analyst estimates and revenue climbing 5.7% year-over-year to $2.07 billion.
However, any transaction faces significant hurdles beyond valuation concerns. Investment bank acquisitions have historically proven difficult to integrate successfully, and Jefferies' management has not publicly signaled openness to a sale. The company's 52-week high of $70, reached before the First Brands bankruptcy controversy unfolded, stands in stark contrast to its current trading price near $39.50.
SMFG's exploratory approach mirrors the cautious strategy other Japanese banks have employed in cross-border M&A. The lender appears prepared to wait for optimal conditions rather than pursue an aggressive bid at current depressed levels, particularly given Jefferies' upcoming earnings report could provide additional clarity on the company's financial health and recovery trajectory.