NEW YORK -- Travelers Group agreed yesterday to buy Salomon Inc. for $9.3 billion, moving closer to its goal of becoming a financial supermarket handling everything from health insurance to retirement plans.
Travelers, an insurer and the parent of Baltimore-based Commercial Credit Co., will join its Smith Barney Inc. and Salomon Brothers Inc., the world's biggest bond trader with investment bankers around the globe, to create Salomon Smith Barney Holdings Inc., the nation's third largest securities firm.
"No one else really has a similar business mix," said Tom Finucane, who helps manage $8 billion for John Hancock Funds in Boston and owns about 500,000 Salomon shares. "Insurance is the piece Travelers has that Morgan Stanley, Merrill Lynch & Co. and Goldman, Sachs & Co. don't."
"This is the beginning of the creation of the financial supermarket of the future, which is why it is so cutting-edge; nobody is in a position to do this," said Linda Chase, a financial services analyst at Towers Perrin, a New York-based business consulting firm.
The acquisition is the latest of more than 25 by Sanford I. Weill, now Travelers chairman and a leader on Wall Street for more than 30 years. Travelers stock has risen an average 45 percent a year for the past five years, compared with 19.8 percent for the Standard & Poor's 500 index.
Travelers is buying Salomon as mergers continue to sweep Wall Street. Morgan Stanley Group Inc. and Dean Witter, Discover & Co. merged earlier this year. Seven banks bought securities firms this year -- including Bankers Trust New York which purchased Alex. Brown Inc. -- in an effort to provide a full menu of financial services to corporate clients and individuals.
Salomon stock rose $4.75 to $76.25 yesterday as 7.6 million shares changed hands. Travelers fell $2.65 to to $69.8125.
Salomon is among Wall Street's most volatile companies because it derives most of its profit from trading bonds using its own capital. The acquisition is a departure for Weill, who has rewarded shareholders with earnings that grow, almost without fail. Travelers was added to the Dow Jones industrial average six months ago.
Weill is paying about two times Salomon's book value, or assets minus liabilities, of $4.6 billion. Paine Webber Group Inc., often cited as a potential takeover target, trades at 2.5 times book value.
Travelers will pay 1.13 of its shares for each Salomon share. That values Salomon at $78.46 per share -- well above Tuesday's $71.50 closing price.
Travelers said it will take a charge of as much as $500 million once the transaction is completed to pay for firing employees, leases and computer changes.
The purchase "substantially strengthens Travelers Group's earnings stream and capital base, catapulting Salomon Smith Barney into the top tier of global securities and investment banking firms," Weill said in a statement.
Weill told investors and analysts that Salomon will add 10 percent to Travelers' earnings on average, over the next two years.
"There are enormous synergies," said Gerald Smith, a UBS Securities investment banker and a former Salomon managing director. "Smith Barney has always wanted access to international markets, and Salomon has spent a lot of time building up that business."
The new company will have $9 billion in equity capital.
James Dimon, 41, and Deryck Maughan, 49, will be co-chief executives of the merged securities firm, which will be named Salomon Smith Barney Holdings Inc. Dimon is chairman and chief executive of Smith Barney Inc. He will remain president, chief operating officer and a director of Travelers. Maughan is chairman and chief executive of Salomon Brothers Inc. He will become a vice chairman and a director of Travelers.
Smith Barney's Steven Black will oversee global equities, municipal bonds and Atlanta-based brokerage Robinson-Humphrey. Jay Mandelbaum of Smith Barney will be responsible for private client sales and marketing. Michael Panitch will lead the firm's 11,000 brokers.
So far this year, Salomon is the second largest debt underwriter, with sales of $90.4 billion, according to Securities Data Co. Smith Barney is No. 12, with $15.4 billion.
In stocks, Salomon ranks eighth, underwriting $3.3 billion of equities. Smith Barney is ninth, with sales of $3.0 billion.
Salomon is the eighth ranked mergers adviser, helping arrange $69 billion of corporate marriages. Smith Barney is 14th, with $32 billion.
The sale of Salomon shows that the company never fully recovered from the 1991 U.S. Treasury bond scandal that threatened to put it out of business, and from the subsequent departures of top traders and investment bankers.
Salomon's biggest investor, billionaire Warren Buffett, and Maughan helped steady the firm after its top executives, including former Chairman John Gutfreund, were fired in the wake of the scandal. Salomon's stock, which fell to a low of $20.75 in 1991, has outpaced the S&P 500 since Maughan, Buffett's choice, took charge.