(July 12) – “For several years, Donald B. Marron has waved off questions about when he would relent and sell the PaineWebber Group, the fourth-largest United States brokerage firm and the biggest one that is not part of a financial services conglomerate,” write Patrick McGeehan and Andrew Ross Sorkin in today’s New York Times.
“Now, Mr. Marron, the firm’s longtime chairman and chief executive, appears to be waving a white towel in surrender. UBS A.G., a giant Swiss bank that was formerly called Union Bank of Switzerland, has offered to pay about $12 billion in cash and stock for PaineWebber, and the companies were expecting to announce an agreement today, according to executives close to the deal. Almost $1 billion of the purchase price will go into a bonus pool to retain crucial employees of PaineWebber, an executive said.”
“That price would translate to slightly more than $73 a share, or a premium of about 46 percent over PaineWebber’s closing price yesterday of $49.9375. Shares of PaineWebber rose $3.8125 as speculation about a possible merger circulated.”
“Among the biggest beneficiaries of the acquisition would be the General Electric Company and Mr. Marron. G.E., which sold the defunct Kidder Peabody brokerage firm to PaineWebber, owns about 31.5 million shares, or 22 percent, of PaineWebber’s stock. Those shares would be worth about $2.3 billion at the proposed price. Mr. Marron, who has run PaineWebber for two decades, owns shares that would be worth more than $85 million.”
“The proposed deal called for UBS to pay about half of the purchase price in cash and the other half in UBS stock, an executive said. It would be the biggest deal involving a Wall Street firm since Congress passed legislation late last year that tore down walls built in the 1920’s to separate banks, investment banks and insurance companies. Some analysts expected that change to usher in a wave of consolidation, but so far most of the acquisitions have been relatively small ones that probably could have been done under the old laws.”
“In buying PaineWebber, UBS would be copying a model pioneered by Merrill Lynch & Company that combines the process of creating securities for sale, known as investment banking, with the distribution of those products to investors through a network of brokers. The biggest financial services firm, Citigroup, and the biggest securities firm, Morgan Stanley Dean Witter & Company, are products of mergers of investment banks and brokerage firms.”
“UBS and PaineWebber are quite complementary, so executives close to the firms expect minimal job losses as a result of the deal. UBS manages about $1 trillion in assets, mostly for European institutions. It also has a United States investment banking arm built around the Warburg and Dillon Read firms that it bought in the 1990’s.”
“PaineWebber’s investment banking operation has never been competitive with the biggest Wall Street firms, but it has a significant stock research and trading business. UBS specializes in research and trading of European securities and currencies.”
“UBS, which has made no secret of its ambition to be a major player in financial services on both sides of the Atlantic Ocean, in May listed its stock on the New York Stock Exchange. Marcel Ospel, UBS’s chairman, did not deny that a primary reason for the listing was to create a currency that could be used to make acquisitions in this country.”