Call me an idiot but I think this may change the landscape (to some degree) vis-a-vis early stage biotechs and other entrepreneurial technology companies due to the heavy marketing and check book influences of CMB. This from the NYT...
Chase Agrees to Acquire Hambrecht & Quist
By JOSEPH KAHN and PATRICK McGEEHAN
The Chase Manhattan Corporation agreed Tuesday to buy San
Francisco-based Hambrecht & Quist for $1.35 billion, giving
one of America's dominant traditional banks an entree into the world of
Internet start-ups and bringing it a step closer to becoming a full-service
financial concern.
The proposed cash deal pairs two financial companies -- Chase, the
heavyweight banker for large corporations, and Hambrecht, a boutique
catering to Silicon Valley entrepreneurs -- that had begun to look like
lonely singles at a swinging square dance. Chase's major competitors
have all bought or merged with investment banking firms. Hambrecht is
the last of its class of finance firms that catered to technology companies
to find a larger and deeper-pocketed partner.
But the marriage, if it is consummated, falls far short of the megamerger
that Chase executives, and many on Wall Street, have talked about for
more than a year. The New York-based bank, the third largest in the
nation, has made no secret of its desire for a "transformative" deal that
would create the world's most potent competitor in everything from bank
loans to initial offerings of stock. Chase officials were quick to point out
that yesterday's purchase did not fulfill those ambitions.
"It's important to say what this deal is and what it isn't," said Marc
Shapiro, a Chase vice chairman. "What it is is an investment in the new
economy. But as a total solution to the global platform we are looking for
-- we have not crossed that bridge."
The Hambrecht deal seemed to some analysts to be a tacit admission that
Chase's recent overtures to Merrill Lynch, Morgan Stanley Dean
Witter and Goldman, Sachs & Company, the three biggest Wall Street
firms, had been unrequited, at least for now. But many said that they
expected the consolidation in the financial industry to continue.
"Could we wake up one morning and find that Chase has merged with
Merrill? I don't think this changes that possibility," said David Berry, a
bank industry expert at Keefe, Bruyette & Woods. "But for some
reason, there's been no big deal for Chase so far. And at some point you
have to get on with life. This makes sense for them."
One possibility, bank analysts said, is that Chase's pursuit of Hambrecht
signals its willingness to build a stock underwriting franchise brick by
brick, rather than spending at least $30 billion to buy one of the top three
Wall Street firms. That suggests that Chase could try to buy a midsize
underwriter like Lehman Brothers or Paine Webber next.
Though it leads the pack in the traditional lending business, Chase had
been slow to seize on the opportunity to expand into stock underwriting.
Competitors including Citigroup, Bank of America and BankBoston
have been quicker to snap up stock underwriters when Depression-era
laws that separated banks and brokerages began being eased several
years ago.
The Hambrecht match also underscores the increasing importance of
what analysts call the "new economy" -- high-technology and Internet
companies that, at least in their early years, are too small or lose too
much money to do business with the likes of Chase. Such start-up
companies have often traditionally relied on specialist firms like
Hambrecht for financial guidance because they were ignored by large
banks and most Wall Street firms.
Hambrecht's roots in the technology banking business run deep. Daniel
H. Case 3d, the chief executive, is the older brother of Steve Case, chief
executive of America Online. Hambrecht's reputation for picking small
but promising winners was made in 1980, when it brought Apple
Computer to market, and sealed in 1995, when it backed Netscape's
initial public offering.
For Hambrecht -- its name would change to Chase Securities West if the
deal is completed, as expected, by the end of the year -- Chase seems
an ideal match after a long search. Case has talked to numerous potential
banking partners in the past, including the German banks Deutsche
Bank and Dresdner Bank, as well as Merrill Lynch, bankers said.
Hambrecht's relative position in high-technology investment banking had
slipped behind Goldman, Sachs, Morgan Stanley and other top Wall
Street firms in the last few years, in part because it did not have the range
of services of its rivals.
"Our little entrepreneurial part of the economy has become the dominant
part of the total economy in the 1990's," Case said in a interview at his
headquarters, a distinctive steel and glass structure designed by Mies van
der Rohe in San Francisco's financial district. "But our ability to serve our
clients has been narrowed by products and geography. Now we can
grow with them."
The sale is also a financial coup for Hambrecht executives. Chase will
pay $50 a share to buy the firm, 22 percent more than Monday's closing
price of $41.0625. It will also set aside $200 million in stock to retain
key bankers at the combined firm. Shares of Hambrecht rose $7.625
Tuesday, to $48.6875, a record high; Chase fell 31.25 cents, to
$73.8125.
Hambrecht could bargain from a position of relative strength this year
after its underwriting business slumped in 1997 and 1998. It has
underwrotten 17 initial public offerings valued at $972 million by the
Securities Data Corporation so far this year. That is almost exactly what
it underwrote in 1996, though its share of the business is less than 5
percent now, compared with 15 percent three years ago. It stock has
more than tripled in the last 12 months.
For Chase, the benefits of Hambrecht are less certain. Their main clients
are on almost opposite poles of the economy. Chase serves large
corporations that have sophisticated banking needs and proven profit
records. Hambrecht prides itself in spotting new companies that would
not qualify for a bank loan.
"There is definitely a substantial difference in the size of our clients," said
James B. Lee Jr., a Chase vice chairman who heads the bank's
investment banking arm and sat next to Case to explain the merger to
Hambrecht employees Tuesday. "But the wonderful thing about the tech
business is that those companies grow fast."
For several years, Chase has been trying to extend its franchise into
investment banking, with mixed success. It is the No. 1 provider of
syndicated loans, one of the top three underwriters of junk bonds and a
top 10 player in mergers and acquisitions. But it has yet to make a mark
in equities, the core investment banking business.
Chase is not the first New York bank to go west to take advantage of
the prolonged boom in technology stocks. Two years ago Merrill Lynch
came very close to buying Hambrecht amid a spree of acquisitions of
midsize investment banks. Morgan Stanley and Goldman, Sachs have
also beefed up their West Coast presences and grabbed larger shares of
the technology investment banking business. In terms of technology
company underwriting, Goldman, Sachs and Morgan Stanley are now
No. 1 and No. 2, respectively, by a wide margin. So far this year,
Hambrecht ranks No. 9.
A buyout by Chase would end the independence of the last remaining
member of four smaller technology-focused investment banks based
outside of New York that was known on Wall Street as the HARM
group. The group comprised Hambrecht; Alex. Brown & Sons;
Robertson, Stephens and Montgomery Securities. Within the last two
years, each of those firms has been gobbled up by a large commercial
bank and each of the acquisitions has been followed by defections of
large numbers of investment bankers and other key employees.
The most notable example of post-merger conflict came after the
Nationsbank Corporation bought San Francisco-based Montgomery
Securities for $1.2 billion. A year later, Thomas Weisel, who had run
Montgomery, left to start a new firm and recruited several of his
highest-ranking colleagues to join him.
"The issues are cultural -- the bureaucracy of a larger bank being
superimposed on an entrepreneurial shop," Weisel said Tuesday,
reflecting on his experience at Nationsbank. Weisel said he had respect
for Chase executives, but predicted that they would also face obstacles
integrating Hambrecht.
Case and Lee acknowledged that there was not a particularly successful
model for the sort of the deal they are proposing, but they said they
expected a different result. "This is about a lot more than just a successful
integration, but without a successful integration nothing else matters,"
Case said.
Still, Chase is setting aside $200 million of stock to retain a pool of
Hambrecht's key employees. Case declined to say how many people
would share that money but he said it would be distributed "broader and
deeper" than in other acquisitions in keeping with the "egalitarian" culture
of the firm.
Lee said those extended payouts would not be the key to making the
integration work. "Money can't fix a bad cultural fit," he said.
Case and the man he referred to as "my new boss," Lee, are a study in
contrasts. Case, tall and slim at 41, still looks the part of the wunderkind
he once was. A Princeton University graduate, he joined Hambrecht after
completing a Rhodes scholarship at Oxford University. He was named
co-chief executive in 1992 and sole chief executive two years later.
Lee, 46, in French cuffs and suspenders, looks and talks more the part of
the powerful New York investment banker. Chase executives said the
Hambrecht deal increased his responsibilities within the bank. Lee
already oversees Chase's substantial syndicated lending and merger and
acquisitions businesses. |
