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News > Deals
CS nabs DLJ for $11.5B
August 30, 2000: 6:13 p.m. ET

Latest transatlantic deal bolsters U.S. operations; extends consolidation trend
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NEW YORK (CNNfn) - The Swiss, long the quiet vanguards of wealth and fortune, continued their very high-profile play to dominate the flow of money from Wall Street to Main Street Wednesday.  

Credit Suisse Group became the latest Swiss bank to capitalize on a rapidly consolidating global brokerage industry, striking a deal to acquire U.S. investment bank Donaldson, Lufkin & Jenrette Inc. for about $11.5 billion in cash and stock.

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graphic CNNfn's Tom Bogdanowicz reports from London on the latest investment bank merger.
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The deal creates a transatlantic banking titan specializing in everything from junk bond underwriting to merger advisory services, and follows closely on the heels of last month's $12 billion merger between Switzerland's UBS and U.S. brokerage PaineWebber.

Wednesday's acquisition will significantly boost Credit Suisse's presence in the United States, where it already owns investment bank Credit Suisse First Boston, a leading underwriter of technology and Internet stocks. It also will boost the Swiss company's ability to appeal to institutional and high net worth clients, particularly in Europe, where DLJ manages a budding operation.

Combined, the new company -- which will retain the Credit Suisse First Boston name -- will boast assets exceeding $600 billion worldwide and assets under management of $120 billion. Credit Suisse will also gain DLJ's expertise in several lucrative investment banking categories, including underwriting high-yield bonds -- where it will continue to rank No. 1 in the world -- and online trading.

"What they're doing is very smart," said Dan Veru, portfolio manager with Palisade Capital Management. "They're consolidating the high-yield bond industry at a cyclical low, when business is not so good now. Coming out of that they'll be the dominant player in the space."

graphicThe deal extends a growing trend toward transatlantic mergers in the investment banking community, where size and scale have become paramount. While industry leaders Goldman Sachs, Merrill Lynch and Morgan Stanley have managed to build international investment banking operations, others have been slower to do so, leaving consolidation as the quickest means to catch up.

Last month, Credit Suisse's top Swiss rival UBS (UBS: Research, Estimates) made their play to join the banking elite, agreeing to purchase U.S. broker PaineWebber (PWJ: Research, Estimates) last month for $12 billion.

Credit Suisse's acquisition Wednesday should put them in the same class, albeit still a step behind, the very large firms such as Goldman and Morgan Stanley, analysts said.

"It certainly does [make sense] because it puts the combination, DLJ-First Boston, more in a league with . . . the 'A' class of the broker-dealers," Timothy Ghriskey, senior equity portfolio manager with Dreyfus Corp., told CNNfn's Before Hours. " To compete with those big megafirms, they really had to move up in size -- and adding DLJ's investment banking strength really does that."

Analysts said the agreement will also step up pressure on independent securities firms such as Bear Stearns (BSC: Research, Estimates), Lehman Brothers  (LEH: Research, Estimates) or J.P. Morgan  (JPM: Research, Estimates) to snare well-heeled banking partners.




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Jeff Morris, a portfolio manager with Invesco Funds, said Bear Stearns and Lehman remain the most viable acquisition candidates and strong buys for investors, particularly given the premiums PaineWebber and DLJ were able to garner. Both the PaineWebber and DLJ deals valued the acquired companies at a rich premium of roughly 18 times forward earnings. (441K WAV) (441 AIF)

DLJdirect will retain tracking stock


Terms of the agreement call for Credit Suisse, the world's 14th-largest bank by assets, to pay $90 in cash for each DLJ share held by the public or company employees. That equates to a 37 percent premium above DLJ's closing price of $65.81 Monday -- before rumors of the deal sent the company's shares soaring more than 25 percent to a close of $84 per share Tuesday.

The remaining 70 percent stake in the company held by AXA Financial, a subsidiary of French insurer AXA, will be exchanged for $5.75 billion in Credit Suisse Group stock and $2.39 billion in cash.

Credit Suisse also agreed to spend $1.2 billion to retain key DLJ employees and issue $2.2 billion in new Credit Suisse options to DLJ executives to replace their current options.

Credit Suisse expects to initiate a tender offer for DLJ's shares next month and complete the transaction in October.

graphicThe transaction does not include certain DLJ preferred stock, debt securities or the tracking stock of DLJdirect (DIR: Research, Estimates), the online investment banking operation 80 percent owned by DLJ.

Credit Suisse expects to achieve pretax cost savings from the transaction of between $750 million (1.3 billion Swiss francs) and $1 billion by 2002. The company also intends to take an $850 million restructuring charge this year related to the transaction.

Credit Suisse expects the merger to be neutral to cash earnings during 2001, neutral to reported earnings in 2002, and add to earnings thereafter.

Credit Suisse shares shed 8 Swiss francs, or 2.1 percent, to close at 373.5 francs in Zurich Wednesday. Meanwhile DLJ (DLJ: Research, Estimates) climbed $4.38 to $88.38 on the New York Stock Exchange while DLJdirect lost $2.44 to $8.56.

In Paris, shares of France's Axa (PCS) closed down 8.00 to 164.5. graphic

"I was surprised at the fact that AXA Financial had spent so much time and money trying to build DLJ, especially build its presence in Europe the last couple of years and now it's pulling the ripcord," said Michael Ancell, an analyst with Banc of America Capital Management.

"The more interesting question is to say what does AXA Financial do with about $8 billion, and we think the answer is that they are going to go after additional asset management assets and money management companies here in the U.S.," he said.

Job cuts on the horizon?


Analysts said there might be job cuts looming because of the extent of the overlap between the operations of CS First Boston and DLJ. Some analysts said they expect Credit Suisse could eliminate up to 10 percent of DLJ's 26,000 jobs.

The companies made no official announcement concerning planned cutbacks on Wednesday, but Credit Suisse did announce it was creating a $1.2 billion fund aimed a retaining key employees.

Transatlantic deals between securities firms and banks have been hazardous in recent years. Credit Suisse's integration of CS First Boston in the early 1990s was rocky, leading to a bout of staff defections from the firm.

The acquisition of Bankers Trust, the parent of securities firm BT Alex. Brown, by Germany's Deutsche Bank sparked the departure of several high-level U.S. executives. The failed plan to merge Deutsche Bank with German rival Dresdner Bank was said to have fallen apart largely due to their dispute about how to integrate the latter's Dresdner Kleinwort Benson investment banking unit. 

Among other transatlantic deals, U.S. banking powerhouse Citigroup (C: Research, Estimates) has recently expanded in Europe, purchasing British investment banks Schroders and Robert Fleming to roll them into Salomon Smith Barney, Citigroup's securities subsidiary.

DLJ Chief Executive Officer Joe Roby will serve as chairman of the new company's executive board, while Alan Wheat, currently the chief executive of First Boston, will remain CEO. Back to top

--CNNfn.com's London bureau contributed to this story.

  RELATED STORIES

CS First Boston to bid for DLJ - Aug. 29, 2000

UBS to buy PaineWebber - July 12, 2000

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