Citicorp and Travelers in $155bn merger
Weill creates largest financial supermarket in the world
Tuesday 07 April 1998
The fruit of the proposed union, to be called Citigroup, promises to become the first truly global financial services supermarket offering everything from traditional banking to investment broking and insurance policies. Measured by assets, the US group will be largest financial firm in the world.
The announcement sent financial stocks soaring in New York and triggered renewed speculation of a whole new wave of consolidation in the industry that could span every financial centre, including London. In an indication of Wall Street's approval of the announcement, shares of Citicorp and Travelers also jumped. Citicorp leapt $38.9375 to finish the day at $181.8125, a rise of 27 per cent, and Travelers gained $11.5 to $73, a 19 per cent rise.
Leaping financial stocks helped buoy an otherwise weak market yesterday, with the Dow Jones industrial average closing above the 9,000 mark for the first time.The Dow ended up 49.82 points at 9033.23, a record, but well off the day's high of 9094.76.
The new group would 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.
Yesterday the two chief executives revealed that the deal was assembled in about four weeks, and culminated in a blessing from President Bill Clinton on Sunday night.
From any angle, yesterday's announcement is stunning. It stands to become the largest corporate merger in value terms ever attempted in history, eclipsing the $37bn telecoms marriage between WorldCom and MCI which until yesterday ranked as the biggest ever announced merger.
The deal, first proposed by Mr Weill, known as Sandy, to Mr Reed, was apparently driven by the logic of creating a financial services one-stop- shopping supermarket for customers in all corners of the world.
Citicorp is already a mighty international banking institution and the world's largest issuer of credit cards. As well as owning the new Salomon Smith Barney, Travelers offers life and property and casualty insurance and is the owner of Primerica, another financial services firm.
The combined group will have $698bn in assets and a market value of $135bn. Its earnings, meanwhile, would stand at $7.5bn, second only in the industry to ING, the Dutch giant which acquired the failed Barings bank. "Make no mistake about it, we're now in a new era, we're moving into a truly global banking model, and I do not expect any regulatory issues to slow this deal down," said Robert Albertson of Goldman Sachs in New York.
The merger would also be pivotal in terms of banks and financial services companies encroaching on each other's territories, facilitated by a gradual lowering of the Depression-era walls between them by the US Congress.
The deregulation process is not yet completed, however. Thus, Citicorp and Travelers are actually leapfrogging progress already made in Washington.
As the law now stands, Citicorp should theoretically be barred from operating the property and casualty insurance arms of Travelers. Both sides expressed confidence, however, that they would get dispensation from the authorities while the deregulation process continues.
It was thought that extensive exploratory discussions were held between them and the Fed Chairman, Alan Greenspan, before yesterday's announcement.
"We are thrilled by the prospects," Mr Reed said of the deal in a press conference. "The business opportunities seem to be fantastic." Confirming that Mr Weill had come to him with the idea last month, he said: "It didn't take long for it to become a compelling story".
Mr Weill said that because of the complementary nature of most of the two companies' products, he did not expect any major slimming down of workforces. In the longer run, it should lead to a growth in their combined staff totals, he suggested. Combined they now have 161,700 employees.
Both men batted away any scepticism about their ability to share the top job at Citigroup. Doubts will centre on Mr Weill, whose reputation as a man who likes to be his own boss dates back to his resignation as president of American Express in 1985 to escape the then CEO, James Robinson.
"Sandy's a good person in my book, I start with that," Mr Reed said. "If you want to go into combat you have to do it with someone with whom you feel comfortable and I have no problems with Sandy.
Banks now under the microscope for possible merger initiatives include those that had previously been rumoured as possible targets for Mr Weill. They were Bankers Trust, JP Morgan and the last remaining major Wall Street partnership, Goldman Sachs.
Under the proposed deal, Citicorp shareholders will receive 2.5 shares and Travelers shareholders one share in the new company for each share currently held. Mr Reed said he hoped that the deal could be closed in the next three months, although that was widely considered as optimistic.
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