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Non-Tech : Midland Walwyn -- Ignore unavailable to you. Want to Upgrade?

To: Jay Durell who wrote (28)	6/20/1998 6:48:00 AM
From: Chris Stovin	Respond to of 35

Saturday, June 20, 1998 Midland-Merrill deal near Midland stock soars to record as merger announcement expected within days By THE FINANCIAL POST ÿThe sale of Toronto stock brokerage Midland Walwyn Inc. to Merrill Lynch & Co. of New York is all but complete, sources said Friday. ÿBarring a last-minute hitch, the two companies will announce a union this weekend or early next week. ÿFuelled by leaks and rumors, Midland stock (MWI/TSE) marched upward this week on heavy volumes. On Friday, it added $1.25 to $27.25 on about seven times the average daily volume. The stock was up $2.55 on the week, after losing $1.80 in Monday's market drop. <Picture: MIDLAND WALWYN> ÿNeither Merrill nor Midland would comment on what they described as rumors. The Toronto Stock Exchange, which regulates trading, asked Midland for an explanation of the market activity, but the brokerage refused to comply. ÿTalk of a deal was hot gossip on Bay Street Friday, and some senior investment sources said they had strong hints or even confirmation of a pact from Midland insiders. ÿAt Friday's close, Midland stock was worth about $1 billion. Estimates vary as to how much Merrill will pay for Canada's largest independent full-service securities firm. ÿ"I hear it's in the range of $29 a share to $32 a share," said a Midland shareholder, although higher numbers have been bandied about. ÿThat price, about three times Midland's book value, is within the range most observers expect. ÿBut even a cash deal would represent "an accounting rounding number" for Merrill, said one source. Merrill is the world's largest securities firm - and the weak C$ is a plus for a U.S. buyer. ÿIt's unclear whether Merrill will pay cash or stock for the firm that has Canada's second-largest retail operation. Either way, there are advantages and disadvantages. A cash offer would create a tax problem for Canadian holders of Midland stock. A straight share exchange for Merrill stock would leave investors holding a U.S. security, which could cause tax problems for shareholders near the 20% foreign content limit for RRSPs and pension funds. ÿMost likely, Midland shareholders will be offered a Canadian security exchangeable into Merrill stock. This would allow them to defer tax and hold a stake in Merrill. ÿWhile pricey, a deal would satisfy Merrill's desire for a Canadian presence. It is a strong institutional player in the U.S. and would give Midland a boost in corporate finance, trading and order execution. "The fit is terrific, as there will be little duplication," one close observer said. ÿNor are the firms strangers to each other. At least three of Midland's officers - including chief executive Bob Schultz - are Merrill alumni. Merrill provides Midland with U.S. research and Merrill may be the largest seller of U.S. mutual funds of Mackenzie Financial Corp., a large Midland shareholder. ÿPerhaps most important, Merrill is "very acceptable to the brokers, which is crucial," a money manger said. Midland employees do not want to be acquired by a bank or by CT Financial Services Inc., which owns Canada Trust. ÿIn contrast, Merrill is an internationally known company in the same business as Midland. "It's tough competing against the bank-owned firms, but when we can plunk down a card with a bull on it, it certainly adds to our competitive capability," said a Midland insider. ÿA dramatic expansion in Canada would echo Merrill's bold moves on the other side of the world. ÿIn February, Merrill said it would create a Japanese retail brokerage by hiring 2,000 employees from defunct Yamaichi Securities Co. ÿA similarly big splash in Canada's retail market would mark a stunning reprise of Merrill's previous bid, in the 1980s, for major-player status among Canada's retail brokerages. ÿMerrill Lynch wasn't alone - the decade also saw giant U.S. firms such as Dean Witter Reynolds and Prudential Bache vying with local Canadian firms for retail accounts. ÿIt was Merrill Lynch Canada, however, that exhibited the most ambition. Merrill Lynch's New York head office dispatched executive Michael Sanderson to Toronto in 1984 with tens of millions of dollars to splurge on turning the Canadian outpost into a dynamic full-service powerhouse. Starting from a small base, Sanderson built Merrill Lynch Canada into a force in Canadian retail brokerage services. ÿBy 1988, however, Merrill Canada was cutting investment banking and institutional equity staff. In January 1990, the Canadian retail operation, with its 685 staff, was sold to CIBC Wood Gundy. ÿ