NEW YORK (CNNfn) - Chase Manhattan Corp. agreed Tuesday to buy investment firm Hambrecht & Quist Group for $1.35 billion in cash, boosting its presence in investment banking and the hot market for technology-related initial public offerings.
The deal, which follows weeks of speculation that Chase was sizing up H&Q, links a leading corporate lender with a company known for taking technology companies public. The deal is expected to close by the end of the year.
Chase Manhattan (CMB), the third-largest U.S. commercial bank in terms of assets, will pay $50 per share for all of the outstanding shares of San Francisco-based Hambrecht & Quist (HQ), a 22 percent premium over Hambrecht's closing price of 41-1/16 Monday.
Early Tuesday, Hambrecht shares rocketed up 7-11/16 to 48-3/4. Chase shares fell 11/16 to 73-7/16.
The acquisition "extends Chase's one-stop investment banking range of products in the highest growth sector of the U.S. economy, where media, telecommunications, information technology and the Internet converge," Chase Chief Executive William Harrison Jr. said in a statement.
Analysts said Chase may not be done yet.
"It's not a huge deal. It's a logical, low-risk entree into the equity underwriting business," said Susan Roth, an analyst at Donaldson, Lufkin & Jenrette. "The reality is that it is small for Chase, so if the bottom falls out, it's going to nick them only a couple of pennies."
Chase reportedly hoped to merge with Merrill Lynch (MER), which is larger and more diversified than H&Q. Despite Tuesday's deal, that still could happen down the road, analysts said.
This acquisition "in no way, shape or form precludes another deal," such as Merrill or Morgan Stanley Dean Witter (MWD), Roth said. Right now, "neither sees the value in marrying with Chase," she added. Chase was also reportedly in talks with rival investment bank Goldman Sachs (GS).
The alliance between Chase and H&Q comes after leading Chase rivals nabbed other San Francisco investment banks. Bank of America bought Robertson Stephens and NationsBank paid $1.2 billion for Montgomery Securities.
When BankAmerica and NationBank themselves merged, Bank of America (BAC) sold Robertson Stephens to BankBoston (BKB). Bank of America hasn't had an easy time reining in Montgomery.
"The road map you don't want to follow is B of A Montgomery," said Roth. " Chase typically been a much better partner. They don't seem to take a 'we bought you, we own you' type of approach."
The purchase takes Chase a step closer to the diversification enjoyed by longtime cross-town rival Citigroup (C), formed through a $70 billion merger last year that brought together investment bank Salomon Smith Barney and Citibank.
"If they're going to go toe to toe with Citigroup, they're going need to have more powerhouse entry in the investment banking area," said Marshall Front of Front Barnett Associates, an investment adviser. "This is not the end of Chase's acquisitions in the investment banking field."
Hambrecht & Quist, which will keep its San Francisco headquarters, will take on the Chase name. Chase will establish a $200 million retention pool of its own stock, payable over four years, to keep Hambrecht employees.