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Hutton Counteroffer Not Worth Pursuing--Shearson

November 11, 1986|DEBRA WHITEFIELD | Times Staff Writer

NEW YORK — Shearson Lehman Bros. said Monday that its merger talks with E. F. Hutton collapsed because Hutton's $55-a-share counteroffer was "not worth pursuing."

But Shearson, noting that a merger with Hutton "could accelerate our growth," would not rule out the possibility of resuming negotiations. "I'm not sure we're prepared at this point to consider 'what ifs,' " said Shearson spokeswoman and Vice President Mary McDermott. "But we're an opportunistic firm."

Capping weeks of speculation that Shearson was preparing a bid for Hutton, the brokerage subsidiary of American Express offered in private talks with Hutton last week to buy the smaller brokerage for $50 a share, or $1.55 billion.

Hutton's board rejected the offer during a 10-hour meeting on Friday and countered with a proposal of $55 a share. Hutton also insisted on more responsible roles for its key executives under a merger than Shearson executives were prepared to give, according to sources close to the Shearson side.

Shearson's McDermott would not discuss the Hutton counteroffer except to say: "We believed our proposal was fair. We regret that the board and management of Hutton didn't share that view."

Hutton executives were unavailable for comment Monday. Over the weekend, Hutton issued a terse statement saying only that "preliminary discussions" with Shearson had ended.

At Hutton offices around the country, the news that Hutton had been discussing a merger with Shearson caused considerable indignation among employees, who said they had received repeated assurances from Hutton executives over the past few weeks that no merger was under consideration.

Despite Hutton's assurances to employees that there had been no discussions, Wall Street advisers to Hutton suitors said Hutton had met separately with Shearson, Chrysler and Transamerica more than a month ago. Even then, the sources said, the price under discussion was in the vicinity of $50.

But that was before takeover speculation added about $10 to the price of Hutton's stock. Word that a merger is not imminent cut $4.50 from the price of Hutton's shares Friday and another $2.25 on Monday. The stock closed at $46 a share Monday in trading on the New York Stock Exchange.

Several securities analysts who follow Hutton said Monday that they consider $55 to be a fair per-share price for the nation's sixth-largest financial services company--despite some recent financial problems caused in part by a complicated check-kiting scheme at the firm that evolved into one of the most publicized corporate crimes in history. In May, 1985, the firm pleaded guilty to 2,000 counts of mail and wire fraud and paid a $2-million fine.

Hutton also is considered ripe for takeover because of some recent financial setbacks. Despite a raging bull market--and while other securities firms were reporting strong profits--Hutton lost money in the second quarter and posted a much smaller profit in the third quarter than analysts had anticipated.

In addition, its capital supply is considered far too low for a firm its size--a key reason, analysts said, for Hutton's decision over the weekend to put its life insurance subsidiary on the market separately.

"That decision clearly suggests that they need the capital," said Rodney S. Schwartz, an analyst at the brokerage firm of Paine Webber Mitchell Hutchins.

The insurance unit, which employs 700 and is based in La Jolla, is valued by Hutton at $350 million, said Elliot Wohl, general counsel for the insurance subsidiary--E. F. Hutton Life Insurance.

Analysts generally consider the subsidiary to be worth about $300 million and characterize it as one of Hutton's three gems--along with the company's asset management division and its retail brokerage network, which employs about 6,400 stockbrokers. Shearson has 5,700 brokers.

Times staff writer Bill Ritter, in San Diego, contributed to this story.

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