$155bn merger is biggest in history

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IN A breathtaking bid to forge a global financial services goliath serving 100 million customers in 100 countries, Citicorp and Travelers Group yesterday announced plans to unite in a merger that value the new company at a dazzling $155bn (pounds 93bn).

The new company will take the name of Citigroup, retain the red-umbrella logo of Travelers and be headed jointly by the current chief executives of Citicorp and Travelers, respectively John Reed and Sanford Weill. Shareholders of each would collectively own 50 per cent of Citigroup.

If allowed to go through by US government regulators, the merger promises to transform the financial services universe. Stocks across the financial sector leaped in New York yesterday amid speculation that the deal will quickly force other players into similarly spectacular alliances.

The merger fever helped the FTSE-100 share index in London hit a new closing high of 6105.8, a gain of 41.6 on the day, as analysts concluded that the UK's major banks would have to carry out similar merger deals to keep pace with the rapidly changing market.

In an indication of Wall Street's approval of the announcement, shares of Citicorp and Travelers also jumped. The engagement also takes the recent spate of alliances on Wall Street to an entirely new dimension. Among those was the $9bn acquisition by Travelers only last September of Salomon Inc. Travelers, which has a purely insurance heritage, used that deal to combine its retail brokerage arm, Smith Barney, with Salomon Brothers to create Salomon Smith Barney. Until yesterday, Citicorp had stayed on the sidelines of the merger frenzy, choosing instead to achieve its growth internally.

It stands to become the largest corporate merger in value terms ever attempted in history, eclipsing the $37bn telecoms marriage between WorldCom and MCI.

First proposed by Mr Weill, known as Sandy, to Mr Reed only a month ago, the deal was apparently driven by the logic of creating a financial services one-stop-shopping supermarket for customers in all corners of the world.

Together, the firms will have $698bn in assets and a market value of $155bn. Its earnings, meanwhile, would stand at $7.5bn, second only in the industry to ING, the Dutch giant which acquired the failed Barings bank.