Travelers completes purchase of Salomon Bond giant to team with Smith Barney

Securities industry

November 29, 1997|By BLOOMBERG NEWS

NEW YORK -- Travelers Group Inc. said yesterday that it completed its $9.3 billion acquisition of Salomon Inc., the largest purchase of a securities firm in the United States.

Travelers, an insurer and consumer finance company, is joining its Smith Barney Inc. brokerage with Salomon Brothers Inc., the world's biggest bond trader, to create the second largest U.S. securities firm and a financial services powerhouse. The new firm is called Salomon Smith Barney Inc.

The merger combines "a large domestic retail distributor with a very good fixed-income, 'OK' global investment bank," said Schroder & Co. analyst James Hanbury, who advises investors to buy Travelers stock. "Their aim is to create a firm that will rival Merrill Lynch & Co. or Goldman, Sachs & Co. They're not there yet, but they have a pretty good shot at it."

The acquisition comes amid a wave of at least 10 mergers in the U.S. securities industry this year, including Morgan Stanley Group Inc.'s $11 billion combination with Dean Witter, Discover & Co.

Travelers rose $1.25 to $50.50 as 1.9 million shares changed hands, less than the daily average of 3.3 million over the past three months.

Travelers is closing the transaction just days after it announced that Salomon lost $60 million in October because of volatility in the global markets.

Salomon was "modestly profitable" this month, Travelers said. Still, the loss will affect Travelers' fourth-quarter earnings because the acquisition is being accounted for as a pooling of interests. That requires Travelers to include Salomon's entire fourth quarter in its own fourth-quarter earnings, even though the purchase closed at the end of November, a Travelers spokesman said.

Salomon, founded in 1910 and known for betting its own capital and borrowed funds in the global bond and stock markets, is reducing the risk it takes in trading stock derivatives "substantially" and shutting down its equity risk arbitrage in its customer business, a Travelers spokesman said.

Pub Date: 11/29/97

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