Sector News:
Merrill merger talk is revived
Chase Manhattan still seen as possible partner
By Jeffry Bartash and Tomi Kilgore, CBS
MarketWatch
Last Update: 1:02 PM ET Aug 12, 1999
NewsWatch
Pulse
NEW YORK (CBS.MW) -- Shares of Merrill Lynch jumped 6 percent
Thursday after a report that the nation's No. 1 brokerage may be reviving
merger talks, namely with banking powerhouse Chase Manhattan.
Executives at the brokerage, feeling the competitive heat from financial
supermarket Morgan Stanley Dean Witter, have sent signals that they
might reopen merger discussions, according to the Wall Street Journal.
Merrill broke off talks with Chase last year. Merrill has also been
mentioned in connection with insurance behemoth American International
Group (AIG: news, msgs).
Financial analysts say
Merrill may be
reconsidering a trip
down the aisle with
Chase in light of the
abrupt resignation of
President Herbert
Allison, which has left
no apparent successor
to CEO David
Komansky, and amid
concerns about the
future of its retail brokerage business.
"There's definitely some interest here," said George Bicher of Deutsche
Banc Alex. Brown.
Officials from Merrill and Chase could not be immediately reached. AIG
declined to comment. Shares of Merrill (MER: news, msgs) climbed 4 3/8
to 71 3/8 in recent trading. Other brokerage stocks also soared. Chase
(CMB: news, msgs) fell 7/16 to 76 1/2.
What's at work
Interest in a Merrill-Chase marriage may have been renewed by the
departure of Allison, analysts say. Allison, long considered the heir
apparent to Komansky, had expressed skepticism about a deal last year,
prompting discussions to end.
With no ready successor available for the 60-year-old Komansky, a
merger would pave the way for an executive from Chase Manhattan to
take over the combined entity if a deal were concluded. Chase's new
CEO, William B. Harrison, is seen as the likely candidate.
In addition, Merrill executives are worried about
the threat from upstart online brokers, who are
vying to steal away traditional retail investors from
the "bullish on America" broker. After initially
vowing to shun the Internet, Merrill abruptly
changed course earlier this year, but lags behind in
developing its own web-based business.
"There are knotty strategic problems posed by the
Charles Schwabs of the world," said David Berry
of Keefe Bruyette & Woods, which specializes in
financial stocks.
For Merrill, Chase would bring an enviable roster
of corporate clients and help it sell more equity and
other services to them. Chase would also provide a
huge base of capital to further Merrill's global
ambitions. Chase, in turn, would get an opportunity
to shore up its retail base, expand into equities and
broaden its operations beyond its New York and
Texas strongholds.
By teaming up, Merrill could also better fend off a challenge from Morgan
Stanley Dean Witter (MWD: news, msgs), which is the result of the
merger between No. 2 retail broker Dean Witter and investment banker
Morgan Stanley. The combination of those two has created a so-called
financial supermarket that offers a variety of services to individuals and
institutions, including online trading, asset management and investment
research.
A deal with the insurer AIG, meanwhile, appears less likely. AIG and
Merrill are very different companies with different goals, and analysts are
unclear as to what benefits each would bring to the other.
"AIG is always mentioned because it's big," said Jeff Hopson of A.G.
Edwards. "(CEO) Maurice Greenberg has disputed the idea in the past
and suggested it's something they're not considering."
Obstacles remain
In any event, a deal between Merrill and Chase would face many
obstacles.
First, there's price. "It's not Chase's style to pay a big premium," Berry
noted. It may have to, however. Merrill is growing at double the pace of
Chase and may be poised for several years of strong growth, analysts say.
"You better get a big premium," Bicher said.
Then there are the "softer" issues, such as who would lead the new entity,
what would be its grand objective and how the distinctly different cultures
of the two companies would mesh. That was a big problem with the
gigantic 1998 merger of Citibank and Travelers Group that created
Citigroup (C: news, msgs), analysts say.
Finally, Congress still hasn't reformed a Depression era law that hinders
companies from providing banking and security services. While the law
has been eroded and a major overhaul is expected soon, it still could take
time for a combined Merrill-Chase entity to navigate through the legal
barriers.
Jeffry Bartash and Tomi Kilgore are online reporters for CBS
MarketWatch. |
