German bank OKs deal for BT Deutsche Bank plans to buy Alex. Brown parent for $9.5 billion

Long-speculated merger

Pairing would create world's largest bank

local layoffs possible

November 30, 1998|By Bill Atkinson | Bill Atkinson,SUN STAFF

Bankers Trust Corp. and Deutsche Bank AG's board of directors approved a $9.5 billion takeover of the country's eighth-largest banking company, according to sources.

The boards of Bankers Trust, the parent of Baltimore-based BT Alex. Brown Inc., and Deutsche Bank voted yesterday in separate meetings to approve the deal worth $93 a share after weeks of rampant speculation that a transaction was imminent.

Bankers Trust's board met at the New York law offices of Wachtell, Lipton, Rosen & Katz, where directors unanimously approved the deal, while Deutsche Bank's board met separately in Germany.

The companies are scheduled to hold a news conference in Frankfurt this morning. Frank N. Newman, chairman and chief executive of Bankers Trust, will attend the meeting.

"He was headed toward Frankfurt for [today's] news conference," said a source.

Officials from Bankers Trust and BT Alex. Brown could not be reached for comment last night.

The deal will rank as the biggest purchase of an American financial services firm by a foreign company, and it will create the world's largest banking company with about $850 billion in assets.

"It sounds like the transaction as advertised," said Michael Mayo, a banking analyst in New York with Credit Suisse First Boston. "The benefit for Bankers Trust is they gain a strong partner and help facilitate Deutsche Bank's ability to improve their investment banking footing in the U.S. and Europe."

Ronald I. Mandle, a banking analyst at New York-based Sanford C. Bernstein, said Deutsche Bank is paying about 2.2 times year-end book value for Bankers Trust, which is "not so bad" for shareholders.

Under the deal, Newman would become co-head of U.S. operations with Deutsche Bank's Josef Ackermann, who runs the global corporate and institutional arm for the German bank, according to a report.

Deutsche Bank has also offered several top executives from rTC each company $10 million apiece to remain with the merged company to ensure that the transition goes smoothly, according to the New York Times.

Hundreds of other employees in the investment banking arm will also receive small incentives to stay on for an undisclosed period, the paper said.

Among those who would receive the $10 million bonus are Newman; Mary Cirillo, who would run the new unit's global custody business; Yves de Balmann; and Mayo A. Shattuck III, the former president and chief operating officer of Alex. Brown Inc., who would jointly run the new investment banking business.

These executives and a handful of others would be members of the merged company's investment banking committee, supervised by Ackermann and Newman.

Analysts expect that the merger could mean layoffs for Alex. Brown, the country's oldest investment banking house, which employs about 1,500 in the Baltimore area and was acquired by Bankers Trust about 15 months ago for $2.5 billion.

But Shattuck and other top executives contend that Baltimore could be a winner because Deutsche covets several key businesses here, including its investment banking and private client operations. "I don't feel that they would be making a $10 billion investment with the intent of making radical changes to the U.S. investment banking practice," said Alexander Mason, managing director and co-head of corporate finance at BT Alex. Brown. "That is the franchise within Bankers Trust that they most want to acquire."

"We are in the early going here," he continued. "There is no intellectually honest reason that you would want to do anything to the Baltimore region. It is the epicenter of our retail business, it is the epicenter of the equity business, and it houses many of our most talented investment bankers."

Bankers Trust comes to the negotiating table wounded after it lost millions of dollars on big bets on Russian securities, and it became entangled in an international hedge-fund scandal that made multibillion-dollar bets around the globe and nearly failed.

Last month, Bankers Trust surprised Wall Street by announcing a $488 million loss in the third quarter.

Like other large financial institutions, Deutsche Bank is under pressure to expand its operations and become a global force. It has stated in recent months that it wants to build its business in the United States.

By acquiring Bankers Trust, Deutsche Bank could fill its investment banking hole with BT Alex. Brown, which is well-known and widely respected for taking young, fast-growing companies public.

Analysts said Deutsche Bank executives will face many hurdles trying to meld the two companies together.

"It comes with a real downside," said Mayo, the Credit Suisse analyst. "Deutsche Bank is still not in the bulge bracket in the U.S., and it takes on additional operating risk, cultural risk and financial risk. On balance, we think the risks offset the benefits for Deutsche."

Pub Date: 11/30/98

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