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E.F. Hutton Contacts Shearson On Possible Merger

November 23, 1987

NEW YORK (AP) _ Shearson Lehman Brothers said today that E.F. Hutton Group Inc. had approached it regarding a possible merger, and Shearson hoped to begin negotiations ″as soon as possible.″

Shearson’s disclosure came hours after Hutton indicated in a brief statement it had received overtures from unnamed parties over a possible takeover or investment in the firm.

The two giant investment firms broke off informal merger talks about a year ago.

Hutton said it had instructed its financial advisers to pursue discussions with prospective investors and buyers in reviewing alternatives for maximizing its shareholder value.

Shares of Hutton, the nation’s 10th largest investment firm, jumped $6.87 1/2 to $27.12 1/2 on the New York Stock Exchange after its announcement following a brief trading halt. 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 50 cents to $15.25.

A Shearson spokesman said Hutton contacted the firm this morning to determine Shearson’s interest in a possible merger.

″Shearson Lehman Brothers is interested in such a combination and will begin discussions as soon as possible,″ the statement read.

The two firms’ operations are seen as widely complementary, and Shearson said an internal analysis of Hutton indicated a merger would have ″highly positive benefits for virtually all parts of the combined business.″

In its earlier statement, Hutton said there was no assurance that any transaction would be completed. A spokesman who read the statement declined to give further details,

Hutton had engaged in informal talks with Shearson last November over a possible $1.6 billion merger, but negotiations collapsed when the two could not agree on terms. Hutton at the time also indicated it had been approached by other potential suitors.

A short time later, Hutton announced a cost-cutting plan that included a hiring freeze, layoffs in its worldwide staff of 17,000 and the sale of its insurance unit.

Like other major Wall Street firms, Hutton was hit by financial market turmoil when the stock markets crashed on Oct. 19, and earlier in the year during two major slumps in the bond markets.

The financial impact on Hutton has not been publicly disclosed, but in the days following the crash management vehemently denied unconfirmed rumors that the firm was having severe financial difficulties.

During the nine months ended Sept. 30, Hutton reported net income of $120.6 million, up from $43.6 million a year earlier, as revenue rose to $2.7 billion from $2.1 billion. The 1987 figures included a $51.6 million gain on the sale of the insurance division.

Hutton has suffered from mixed financial results in recent years and its image was tarnished by a check-kiting scandal in which it pleaded guilty in 1982 to 2,000 counts of federal mail and wire fraud. But Hutton’s vast retail brokerage network, with more than 400 offices worldwide, is regarded as an attractive asset.

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