Alex. Brown Inc., the nation's oldest investment house whose roots in Baltimore date back almost 190 years, has agreed to merge with Bankers Trust New York Corp. in a deal valued at $1.7 billion, the companies confirmed last night.
The announcement, which was to be made this morning in New York, was pushed up after The Sun and the Wall Street Journal got wind of the deal.
Top executives of Alex. Brown were in their offices throughout the day yesterday, negotiating and attending to last-minute concerns. They included A. B. "Buzzy" Krongard, chairman and chief executive officer, and Mayo A. Shattuck III, the firm's president and chief operating officer.
Late last night, Krongard left Baltimore for New York, to sign the definitive agreement to merge.
"This merger is a superb fit that significantly enhances the combined firms' ability to provide our clients with a full range of superior services around the world," said Frank Newman, chairman of the board and CEO of Bankers Trust.
"Alex. Brown is one of the most successful and respected investment banking firms in the country. With this merger, we gain some of the best and brightest people in this business," he said.
The merger is expected to result in annual savings of about $80 million through the elimination of redundant operations, the companies said.
The agreement could involve some layoffs of Alex. Brown's 2,700 employees, but Krongard said they would be minor.
"The impact of ths merger is not accomplished by rifs [reductions in force]. There is not a lot of duplication. This is a globbing together, not a sculpting," he said.
The boards of directors of both companies have approved the deal. Under the terms of the agreement, Alex. Brown shares will be exchanged for 0.83 shares of Bankers Trust stock, worth about $68. Based upon the closing prices of both firms on Friday, the merger has a value of approximately $1.7 billion.
At the completion of the merger, expected before the end of the year, Krongard will become vice chairman of the board of Bankers Trust. Shattuck also will be named a vice chairman. Both will continue to work from Baltimore.
Alex. Brown shareholders will own about 21 percent of Bankers Trust, the country's seventh-largest banking company with $120 billion in assets.
The merger is subject to approval by shareholders of both companies and the Federal Reserve, which could take four months.
The merged company would have almost 18,000 employees, $123 billion in assets and operations in more than 50 countries.
Alex. Brown, with assets of $2.5 billion, is a strong, regional brokerage house that specializes in taking public some of the nation's fastest-growing technology, health care and communications firms. Last year, it ranked as the largest underwriter of initial public offerings in terms of number of transactions.
Bankers Trust, on the other hand, has little in the way of an equities operation, but specializes in junk-bond financing and complex lending for some of the world's biggest companies.
Krongard said he believes the two companies are a perfect fit. "If you look at Bankers Trust, they have everything we didn't have, and we have everything they didn't have." He said it would have been too costly and taken the company too long to build businesses that Bankers Trust specializes in.
The merger will make Alex. Brown "a bulge bracket player overnight. We can compete with anyone to finance anything in the world," he said.
"It is an excellent move for Bankers Trust," said George M. Salem, a banking analyst with New York-based Gerard Klauer Mattison, who was reached at his home last night. "It fills in the biggest void in their company. They have been evolving into an investment bank and securities firm for almost 20 years, and equities is their weakest link in that whole evolution."
A few years ago, Bankers Trust was sanctioned by the government for misleading clients about the risks of transactions involving derivatives.
Newman became Bankers Trust's chairman in January 1996. Since then, he has settled the lawsuits related to the derivatives problems, and last year he engineered the purchase of Wolfensohn & Co., a merger advisory firm.
Rumors about a possible merger began circulating on Wall Street last week, sending Alex. Brown's stock soaring $11.75, or 28 percent, to $53.13, on Thursday and Friday.
That prompted the New York Stock Exchange to request on Friday that Alex. Brown issue a statement "indicating whether there are any corporate developments which may explain the unusual market activity." The company would say only: "Its policy is not to comment on unusual market activity."
Bank acquisitions of brokerage firms are expected to increase because the Federal Reserve has changed regulations allowing banks to gain a greater percentage of their profits from securities trading that is mostly dominated by Wall Street firms.