General Electric is negotiating to buy 80% of Kidder, Peabody & Co. for about $600 million, a move that could make GE one of the nation's leading securities firms, sources close to both companies said Thursday.
Directors of Kidder, one of the nation's oldest privately held financial houses, met Thursday and were close to a merger agreement with GE, Kidder brokers and other sources said.
"We've been told they're in negotiations and there could be an announcement" as early as today, a broker in Kidder's Los Angeles office said. However, he added, "nothing's yet signed in ink."
Proposed terms of the merger would give the remaining 20% of Kidder stock to company executives, and Kidder would retain its name, management and compensation structure and would be operated separately from GE's other financial services units, a source close to GE said.
Official spokesmen at GE and Kidder refused to confirm or deny that a merger was under negotiation.
The deal, if accepted by Kidder's board and completed, would boost GE's already formidable presence in financial services while giving Kidder a much-needed boost in capital.
The addition of GE's massive capital resources and financial know-how would make Kidder "a whole new dynamic force in the securities industry," said David F. Bartlett, research director at the New York investment firm of Ladenburg, Thalmann & Co.
General Electric Credit Corp., the GE unit formed originally to finance consumers' purchases of GE appliances, is involved in a broad range of financial services, including such investment banking activities as leveraged buy-outs, private placements of securities and corporate refinancings. It is also active in leasing transportation equipment and in real estate development.
GE's financial services group, which includes GE Credit and a property-casualty insurance firm, is GE's single largest profit generator, accounting for 17% of the parent firm's 1985 earnings.
The deal also could be major boost for Kidder, a conservative and highly profitable firm that has been seen as a prime candidate for going public because of its apparent need to raise capital to expand and keep up with much-larger rivals such as Merrill Lynch, Salomon Bros. and Shearson Lehman Bros.
Kidder--the nation's 15th-largest brokerage firm based on total capital of $363.2 million as of last November--has a strong reputation as an investment banker in mergers and acquisitions and is a leading underwriter of municipal bonds.
But Kidder's activities in underwriting stocks, bonds and other corporate securities have not grown in the past five years, a period during which overall underwritings by all U.S. securities firms have more than doubled, according to Nancy Young, financial services analyst with the Wall Street firm of Cyrus J. Lawrence Inc.
Kidder also has not kept up with other Wall Street firms in developing relatively new products such as mortgage-backed securities or in developing overseas securities markets, analysts said.
"This deal will enable us, especially on the corporate finance side, to go after bigger business," a Kidder broker said, adding that other brokers were generally viewing the news as positive. Analysts said the deal with GE would probably give Kidder access to more capital than would a public stock offering.
Securities firms that have recently made their first public offerings include Morgan Stanley & Co.; Bear, Stearns & Co., and L. F. Rothschild, Unterberg, Towbin.
But, despite the advantages, the deal is not assured of approval, some sources said. Kidder President and Chief Executive Ralph DeNunzio said last month that the company wants to boost capital but ruled out the possibility of an acquisition by a larger financial institution.
Some analysts also suggested that GE could have problems keeping some of Kidder's top personnel, who may not like losing their independence. And, they said, GE may have its hands full coordinating a merger with Kidder while simultaneously pulling off its proposed $6.3-billion acquisition of RCA.
That deal, which would become the nation's largest non-oil merger ever, is expected to be completed in the second half of this year if it wins approvals from the Federal Communications Commission and the Justice Department.
Analysts said the $600-million price tag for Kidder--about 2.5 times the brokerage firm's equity capital of $245.3 million as of the end of 1985--is reasonable because stocks of several other brokerage firms also are selling at between 2.5 and 3 times equity.
GE stock fell 62 1/2 cents per share to close at $78.25 in New York Stock Exchange trading Thursday.
G.E. AND KIDDER AT A GLANCE General Electric: 1985 sales: $28.29 billion 1985 net income: $2.34 billion Shares outstanding: 456 million 12-mo. price range (NYSE): $56.25 -$82.25 Thursday close: $78.25, down 62 1/2 cents Employees: 300,000 Kidder Peabody Capital: $363.2 million * Employees: 6,047 ** Branch offices: 74 ** * as of November, 1985 ** End of 1985