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PaineWebber to Acquire Kidder in Stock Swap : Securities: The $675-million deal would create the nation's fourth-largest brokerage house. Massive layoffs are expected.

October 17, 1994|From Times Wire Services

NEW YORK — In a deal that would create the nation's fourth-largest brokerage house, PaineWebber Group Inc. agreed in principle Sunday to buy the troubled Kidder Peabody brokerage from General Electric Co., a top Kidder executive close to the talks said.

In return, GE would receive a 21% stake in PaineWebber and a seat on the company's board of directors, according to news reports.

The details of deal still were being negotiated late Sunday. A final agreement is expected to be reached today.

Kidder, which just last week slashed 10% of its 5,000-person work force, would have to cut more than half the remainder, one of the biggest single axings in brokerage history.

The Kidder executive, speaking on condition of anonymity, told the Associated Press the talks had almost stalled Friday after several weeks of negotiations.

The executive said GE also agreed to pay an average two weeks' severance for each year worked to laid-off Kidder employees.

Officials of GE and PaineWebber couldn't immediately be reached for comment on the talks.

PaineWebber wants Kidder's 1,250-member broker force as well as some of its investment bankers, research analysts and traders, PaineWebber representatives said. Kidder brokers generate $425,000 in average annual revenue for the firm, compared with about $300,000 a year for the average PaineWebber broker.

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The value of the deal wasn't clear. But the New York Times, quoting unidentified sources who are close to the talks, reported in today's editions that the acquisition was a $675-million stock swap.

That is roughly equivalent to Kidder's value--but far less than the $1.4 billion GE has invested in Kidder since acquiring the brokerage in 1986.

GE's decision to jettison Kidder caps a tumultuous year at the brokerage, once one of the most coveted brand names on Wall Street but increasingly troubled by financial difficulties.

The brokerage was rocked by allegations in April that its star government bond trader, Joseph Jett, had concocted $350 million in phony profits in a scheme to hide trading losses.

Jett has denied the allegations and said his bosses directed his trading.

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In June, General Electric ousted Kidder's top management. The brokerage firm, which has lost enormous sums in the sharp downturn in the bond market that began in February, has sought to trim costs by $100 million and stem its losses.

Kidder officials told employees earlier this month in an internal announcement that they had held sales talks with other securities firms.

Kidder lost more than 30 of its top brokers this year and others said they would consider leaving if the branch network is sold to PaineWebber.

On Friday, General Electric shares rose $0.375 to $50.375. PaineWebber was unchanged at $14.875.

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