Alex. Brown sale: how deal was done Banking: Stealth negotiations for the sale of America's oldest investment bank gave a new meaning to the word "intense."

April 13, 1997|By Bill Atkinson and Jay Hancock | Bill Atkinson and Jay Hancock,SUN STAFF

The pagers wouldn't stop beeping.

A. B. "Buzzy" Krongard and Mayo A. Shattuck III were trying to sell America's oldest investment bank, keep it quiet, act nonchalant and endure doubles tennis nine days ago in Florida before returning to secret phone negotiations.

But the beepers beckoned.

New York was calling with a question about employment contracts.

Beep. Baltimore, asking about margin-loan portfolios.

Beep. Newspaper reporters: Were Krongard and Shattuck selling out?

The two bankers stopped the match, huddled on the sideline and hit the cell phones in sweaty whites.

Their partners, two young brokers, "must have thought it was a bit peculiar," said Shattuck, Alex. Brown's president and chief operating officer.

Investment bankers are an intense lot, and negotiating corporate mergers is an intense pastime, but the courtship of Alex. Brown Inc. and Bankers Trust New York Corp. delivers fresh meaning to intensity.

Bankers Trust, a freewheeling New York commercial banking company, and Alex. Brown, a starched Baltimore brokerage and investment banking house with roots dating to 1800, announced a week ago that they would merge in a $1.7 bil- lion deal.

Negotiations between the two didn't really take off until 10 days before the transaction was announced.

Even some Alex. Brown directors didn't know how close the firm was to selling until a special board meeting was scheduled March 27 for several days later.

Torn between the need for secrecy and the huge task of negotiating a deal, Shattuck, 42, spent hours on a bathroom telephone, perched on a toilet, so he could work in the same Ritz-Carlton suite as Krongard.

Only a handful of bosses and secretaries at both companies knew of the talks. Faxed documents were addressed in code. Krongard, Alex. Brown's chairman and chief executive, didn't tell his wife.

Even 85-year-old company patriarch Benjamin H. Griswold III stayed in the dark.

It wasn't enough.

Word of the sale started to leak, then flood.

Brown's stock soared on speculation of a Brown-Bankers union. Financial news services reported rumors of the deal. Reporters circled. The New York Stock Exchange demanded to know what was going on.

Ultimately, like the tennis game, the negotiations to peddle Baltimore's premier corporate gem were squeezed and altered by outside events.

The bankers had to jam the deal through five days early in a frenzied weekend of coffee, faxes, M&Ms and contracts, with Shattuck at one point vomiting from exhaustion and emotion.

Even then, a brush with death by the Bankers Trust chairman's son complicated the pact at the final hour.

"Could the deal hold the strain of no public announcement for a week?" said Krongard, 60. "We decided no. So let's either do it or kill it."

Initial overture rebuffed

The overtures came last winter.

Frank Newman, 54, the affable, soft-spoken chairman and chief executive of Bankers Trust, talked to Krongard after casually broaching the topic of a merger in a previous meeting with Shattuck.

The essence of Krongard's response, Shattuck remembers: "Nice to meet you. We're not for sale."

It was a familiar line.

Over and over again, Krongard had declared the company's independence. Global forces were pushing banks, insurance companies, brokerages and investment banks together, but Krongard had made a persuasive case that Alex. Brown could ride out the storm.

Tracing its roots to a 19th-century Baltimore trading company, -- the firm had carved out a secure, hugely profitable niche raising money through stock offerings for America's fastest-growing businesses: Microsoft, Starbucks, Outback Steakhouse, America Online, Oracle Systems.

Hot growth companies needing capital always had Alex. Brown on their short list.

Alex. Brown needing a merger partner? Krongard, an ex-Marine, amateur poet and martial arts expert, ridiculed the idea.

Did he see any advantages in a business combination between Brown and a larger company?

"None that I can think of," he said in an interview with The Sun two years ago. "If it ain't broke, don't fix it."

But in Brown's plush, 30th-floor headquarters downtown, Krongard and Shattuck now say, they weren't so sure.

Big corporate customers were starting to demand more than just stock expertise, Brown's specialty. Even Brown's most loyal clients were expanding and requesting bigger menus.

They wanted huge, short-term acquisition loans. They wanted to float big batches of junk bonds -- securities with high interest rates and higher risk. Some wanted "hedges," "swaps," "inverse floaters" and other exotic financial instruments.

And they didn't want to shop for them at six other firms.

The business "is truly changing," said Meg VanDeWeghe, a finance professor at the University of Maryland and a former managing director with J. P. Morgan & Co.

Corporations "want fewer relationships with financial institutions, and those financial institutions have to be able to deliver an entire spectrum of services."

What it boiled down to: Alex. Brown was losing opportunities.

Record profits last year

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