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E.F. Hutton Contacts Shearson on Possible Merger

November 24, 1987

NEW YORK (AP) _ E.F. Hutton Group Inc. approached Shearson Lehman Brothers Holdings Inc. about a possible merger Monday after announcing it was reviewing other unidentified takeover proposals.

The disclosures appeared to indicate a merger was inevitable for Hutton, a scandal-plagued investment firm that broke off informal takeover discussions with Shearson a year ago.

A merger of Shearson and Hutton would vault the combination past Salomon Inc. as the nation’s biggest investment firm.

Hutton stock jumped $7.12 1/2 a share to $27.37 1/2 on the New York Stock Exchange on Monday. Based on its current stock price and roughly 34.2 million common shares outstanding, Hutton’s market value exceeds $920 million.

Shearson shares, about 60 percent of which are owned by American Express Co., rose 75 cents to $15.50 in NYSE trading.

Ranked by capital, Shearson and Hutton are the nation’s second-and 10th- largest securities firms, respectively, according to the Securities Industry Association.

Shearson is seen as coveting Hutton’s worldwide retail network, which would immediately add about 6,500 account executives to Shearson’s 5,700 brokers, while enabling it to get more use from its computerized securities processing operation, which was expanded last year.

Analysts said a merger would enable Hutton to strengthen its relatively weak presence in capital markets activities, while bolstering its erratic financial performance.

It also could remove some of the tarnish the 84-year-old firm has suffered since pleading guilty in 1985 to 2,000 counts of federal mail and wire fraud stemming from a check-overdraft operation.

Hutton has been involved in several other embarrassing incidents, including having to establish a special $130 million reserve last year to cover customer losses on certain municipal bonds the firm had marketed and traded improperly.

Hutton announced Monday morning that it had received indications of interest from unidentified parties in a takeover or substantial investment in Hutton and had instructed its financial advisers to hold discussions with prospective investors or buyers.

Hutton declined further comment, but Shearson later disclosed that Hutton had renewed takeover talks. That seemed to indicate Hutton might have received overtures from unwanted suitors but had become resigned to losing its independence.

Renewed interest in Hutton comes as most major Wall Street firms are undergoing restructuring and retrenchment to cut costs as industry growth slows dramatically following the Oct. 19 crash. There also has been speculation that crash-related financial problems could prompt a spate of industry mergers.

Hutton vehemently has denied market rumors that it suffered severe financial problems during the crash, but has not detailed the impact of the crash on the firm.

During the nine months ended Sept. 30, Hutton reported net income of $120.6 million, including a $51.6 million gain on the sale of the insurance unit, on revenue of $2.7 billion.

Shearson, which said it had a net $70 million loss in October, had a nine- month profit of $189 million and revenue of $3.87 billion.

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