The price could be as high as pounds 500m, according to City sources. The key player will be Evelyn de Rothschild, whose family bank NM Rothschild holds 25.9 per cent of Smiths.
It is understood that Rothschilds had not yet been approached by yesterday evening, which sources close to the talks suggest means a deal is still some days away.
The acquisition would place Merrill on a par with SBC Warburg in the competition for lucrative European privatisation mandates, an area in which the $20bn Wall Street colossus has been weak so far.
Commerzbank is keen to follow its bigger rivals Deutsche and Dresdner who have recently concentrated investment banking activities in London. Commerzbank bought London fund management company Jupiter Tyndall two months ago.
SNC said it expected an offer, if one was agreed, to be pitched at a small premium to the "current ordinary share price" which was about 522p at the time of the statement. Taking into account SNC's different types of shares, this would value the company at about pounds 490m.
The shares closed up 20p at 511p yesterday after intitially surging to 536p on the news.
The market has been buzzing with bid rumours for SNC for the past few weeks. But NM Rothschild's 25.9 per cent stake has been a stumbling block, since Evelyn de Rothschild has so far been unwilling to sell.
Analysts said the proposed price for SNC represented full value for the company which has had an excellent earnings record in recent years. Profits fell from pounds 95.2m to pounds 31.2m last year, but analysts saw this as an adequate result considering the tough market conditions of 1994. The company, based in London's Farringdon Road, still managed to increase its dividend from 10p to 11p.
Anyone buying SNC would obtain a significant equities presence in Europe, the US, Far East and South Africa.
Both Merrill Lynch and Commerzbank refused to comment. But sources close to the talks confirmed the two were in serious negotiations.
Phoenix Securities, a small London corporate finance boutique, is handling the talks on behalf of SNC.
Michael Marks, who succeeded Sir Michael Richardson as SNC chairman at the beginning of the year, has made clear in the past his view that the future belongs to global, integrated securities houses with plenty of capital.
Merrill Lynch, nicknamed the "thundering herd", has a market capitalisation of over $8bn, employs 44,000 and is by far the biggest Wall Street securities house. SNC by contrast employs just over 1,500 people.
Commerzbank is one of Germany's big universal banks, but like its main rivals, Deutsche and Dresdner, lacks investment banking expertise and international reach. It has a small operation in London and appears to be keen to catch up.
The London markets have been tipping Commerzbank as a possible bidder for SNC since last autumn.
Yesterday morning the markets tipped three American houses to buy Smiths - Morgan Stanley, Bear Stearns and Smith Barney. The first two issued statements saying they were definitely not interested, while Smith Barney declined to comment. Smith Barney boss Sandy Weil is said to be still smarting from his failed attempt to buy Barings, which went to Dutch bank ING.
Analysts speculated that rival bids could be flushed out by yesterday's events. Schroders, long rumoured as a possible suitor, yesterday denied it was in talks.
Chairman: Daniel P. Tully
Chief Operating Officer:
David H. Komansky
Assets under management:
Total stockholders' equity:
Operations: Corporate finance,
Ranked first in
poll for bond
The Thundering Herd
September 1994 Deutsche Bank bases investment banking in London
ING buys Barings
Commerzbank buys Jupiter Tyndall
Swiss Bank Corporation buys SG Warburg
Dresdner Bank buys Kleinwort Benson
Westdeutsche Landesbank announces big equities expansion in London
NM Rothschild & Sons
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