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Salomon deal is praised
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September 24, 1997: 5:44 p.m. ET
Wall Street sees Salomon Bros. and Travelers' Smith Barney as a good fit
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NEW YORK (CNNfn) - The $9 billion acquisition of brokerage Salomon Brothers by Travelers Group Inc. was greeted positively by Wall Street experts Wednesday.
Analysts praised both the price of the acquisition and the new services it will allow Travelers to offer customers.
"If you compare [the merger] to the range of recent deals, Travelers is actually getting a pretty good deal," said insurance analyst Kathy Siefert at Standard & Poor's.
"In terms of what it'll do to their mix of business, it gives them a little more presence in the fixed income arena and a greater presence overseas." (153K WAV) or (153K AIFF)
Under terms of the deal, Travelers, which sells insurance, mutual funds and other financial services, will issue 1.13 of its shares for each share of Salomon stock.
Travelers said it will incur charges of about $400 million to $500 million after taxes and that the deal should be completed by the end of the year.
The company said it will merge Salomon with its own Smith Barney to form a new unit to be called Salomon Smith Barney Holdings Inc.
Banking consultant Bert Ely said the two units will complement each other and allow them to better compete against Merrill Lynch.
"In some ways, it will start to look more like Merrill Lynch, which is very strong from a retail standpoint, and also one of the real leaders in the institutional side of the business," said Ely.
Salomon Smith Barney will be ranked fourth among brokerages in equity underwriting, fifth in mergers and acquisitions and eighth in initial public offerings.
Salomon (SB) and blue chip Travelers (TRV) got a vote of confidence Wednesday from famed investor Warren Buffet, whose Berkshire Hathaway Inc. owns 18 percent of Salomon Bros.
Buffett said in a statement that Travelers CEO Sanford Weill has "demonstrated genius in creating huge value for his shareholders."
The merger is just the latest in a string of deals between banks or financial-service businesses and investment firms. Last week, Fleet Financial Group announced plans to acquire Quick & Reilly Group Inc. for $1.6 billion.
Those trends may have pushed Salomon into a deal, said Stephan Haimo, mergers and acquisitions attorney at Stroock & Stroock & Lavan.
"Salomon Brothers was getting smaller as the others were getting bigger and bigger," said Haimo.
"I think the Morgan Stanley-Dean Witter deal did send a strong message to the marketplace that growth and consolidation in this industry is the buzzword of the time." (143K WAV) or (143K AIFF)
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