The new firm, to be known as Smith Barney Shearson, will combine Shearson's 8,500 brokers with the 2,400 who work at Primerica's Smith Barney. It will employ about 27,000 people in all, although both Primerica and American Express warned yesterday that many administrative employees and some broking staff will be made redundant by the merger. The new company will have a total of dollars 112bn ( pounds 80bn) in assets under management.
Smith Barney's chief executive, Frank Zarb, will head the new subsidiary when the merger is completed in July.
American Express, which will retain Shearson's Lehman Brothers investment banking, trading and research operations, will receive dollars 850m in cash, dollars 150m in convertible shares and warrants, and performance payments of up to dollars 50m for three years.
For the next five years, Amex, which acquired Shearson in 1981, will also be paid 10 per cent of any after-tax profits exceeding dollars 250m a year.
The merger, the largest in Wall Street history, relieves Amex of the most costly mistake of its decade-long expansion into financial services. The company will take charges totalling dollars 730m in the first quarter to cover the costs of the merger and write off dollars 750m in accounting goodwill.
Amex paid dollars 930m in 1981 to acquire Shearson, then controlled by Sandy Weill, who is now chief executive of Primerica. It spent as much again merging it with a rival broker, EF Hutton, in 1987, and had to inject another dollars 750m in 1990 to shore up a balance sheet weakened by bad property and takeover loans.
For Mr Weill, who stayed on as president of American Express until 1985, the deal is something of a vindication. Mr Weill approached the former Amex chief executive, James Robinson, his former boss, with an almost identical offer three years ago, only to be turned down.
But in January, Mr Robinson was ousted by Amex directors and replaced by Harvey Golub, the former head of Amex's financial planning subsidiary, fired, ironically, by Mr Weill in 1983. Mr Golub said yesterday that Amex was also considering a separate public offering for Lehman Brothers, as many analysts expected.
Mr Weill is known as a ruthless cost-cutter, lifting profits at Primerica by 20 per cent a year since he acquired it in 1988.Reuse content