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Travelers to Buy Salomon Bros. for $9 Billion


NEW YORK — Travelers Group, bidding to become the world's premier financial-services conglomerate, said Wednesday that it would buy investment-banking powerhouse Salomon Brothers for more than $9 billion in stock.

Salomon will be folded into Travelers' huge brokerage unit, Smith Barney Inc., to form the nation's second-largest securities firm, behind recently merged Morgan Stanley, Dean Witter, Discover & Co. but ahead of Merrill Lynch & Co.

But Travelers, led by the wily Wall Street veteran Sanford I. "Sandy" Weill, 64, is much more than just a securities firm. Over the last decade, Weill has assembled a one-stop financial supermarket that also offers life and property-casualty insurance, credit cards, consumer loans and mutual funds.

Wednesday's deal marries Smith Barney's U.S. sales force of 10,000-plus brokers with Salomon's international bond-trading, securities underwriting and investment advisory businesses. "This is about giving Travelers a global franchise," said analyst Richard K. Strauss at Goldman Sachs & Co.

The merger is part of the consolidation wave sweeping the securities industry. This year alone, there have been at least half a dozen $1-billion deals involving securities firms, capped by the Morgan Stanley-Dean Witter blockbuster announced last February and valued at $10.5 billion.

Such consolidation has been going on for years, but the intense competition for securities firms has stepped up in recent months because of the emergence of commercial banks as buyers. The dismantling of Depression-era barriers separating commercial banks from brokerages has touched off what one observer called a "feeding frenzy among the banks."

Recent deals have included Fleet Financial Group's $1.5-billion acquisition of discount broker Quick & Reilly Group Inc.; NationsBank Corp.'s $1.2-billion purchase of San Francisco-based investment bank Montgomery Securities, and Bankers Trust New York Corp.'s $2-billion takeover of the Baltimore brokerage firm Alex Brown Inc.

In a statement Wednesday, Weill said the deal would "substantially strengthen Travelers Group's earnings stream and capital base, catapulting Salomon Smith Barney into the top tier of global securities and investment banking firms."

Travelers also operates Travelers Life & Annuity, Primerica Financial Services, Travelers Property Casualty Corp. and Commercial Credit Co. It does not own a commercial bank, though its name recently surfaced as a rumored buyer for Bankers Trust.

Salomon's stock leaped $4.75 Wednesday to an all-time high of $76.25 on the New York Stock Exchange. The stock gained $4.44 on Tuesday as rumors of a deal swept Wall Street. The two-day surge added nearly 14% to the shares' value.

Travelers, meanwhile, was off $2.63 Wednesday, closing at $69.44 on the NYSE.

Travelers will issue 1.13 shares of its stock for each share of Salomon Inc. stock. At Wednesday's closing price for Travelers shares, the indicated price for Salomon holders was $78.46 per share.

That price is equal to--in Wall Street parlance--13 times Salomon's estimated 1997 earnings per share. That would appear to be a bargain at a time when most blue-chip companies, including Travelers, are trading at 20 times earnings per share or more.

Salomon's reputation was indelibly scarred by a 1991 scandal in which its traders allegedly rigged the auction market in U.S. Treasury securities by secretly cornering supplies of certain issues.

Although criminal charges were never filed, the firm's chief executive, John H. Gutfreund, was forced to resign, and Salomon paid penalties of $290 million to settle federal civil charges.

Rudderless and financially crippled, Salomon was rescued by billionaire investor Warren E. Buffett, who had earlier bought a major stake in the firm. Buffett installed new top management and helped steer the company out of trouble.

But Buffett, reportedly disenchanted with the firm, earlier this year signaled that it was for sale by saying that his 18% Salomon stake was "not a core holding."

"Solly had to do something," said Stephen Willard, a Washington securities lawyer and former executive of CS First Boston. "They never really regained their position after the Treasury-bond scandals."

Analysts said one of the risks in Wednesday's deal is whether Salomon's risk-taking, individualistic culture can successfully be integrated with the more buttoned-down style of a retail outfit such as Smith Barney.

After all, it was Salomon's aggressive bond traders, with their eight-figure bonuses, who were the collective model for Sherman McCoy, the ethically-challenged antihero of Tom Wolfe's satiric novel "Bonfire of the Vanities."

Smith Barney, meanwhile, reacted to 1980s excesses with the finger-wagging ad slogan: "We make money the old fashioned way. We earn it."

"If the acquirer were almost anybody else, you'd worry whether they could pull it off," said Roy Smith, finance professor at New York University's Stern School of Business and a former general partner of Goldman Sachs.

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