Hutton Stock Climbs on Takeover Rumors
The stock of E. F. Hutton Group, parent of the nation’s second-largest independent securities firm, climbed sharply Wednesday on rumors that its takeover is imminent.
E. F. Hutton stock rose $1.875 a share to close at $48.75 as 2,161,500 shares changed hands, making it the Big Board’s fifth-most actively traded stock.
Analysts said interest was fueled by speculation that either Hutton is about to be acquired by another company or that it is negotiating to sell its profitable E. F. Hutton Life Insurance subsidiary, based in La Jolla. (Insurance premiums accounted for 19% of Hutton’s total revenue, rivaling the 21% generated by brokerage commissions, and interest income constitutes the largest portion of Hutton’s revenue: 30%.)
Hutton spokesman Robert Sharkey declined to comment on the speculation, explaining: “We do not respond to rumors.” A spokesman at Hutton’s insurance subsidiary responded similarly.
Analyst’s Report
But Lawrence Eckenfelder, an analyst in the San Francisco office of Prudential-Bache Securities who follows Hutton, claimed that the brokerage firm has sounded out one or more potential suitors in recent weeks.
“The company has not made any outright denials,” Eckenfelder pointed out “That means there may be something to all of the speculation.” Nor have any of the companies mentioned as being interested in acquiring Hutton denied the reports about them, he said.
“I think that something will happen very soon,” Eckenfelder said.
There was talk Wednesday that American Express Co., which already owns Shearson Lehman Bros., was among the interested buyers. Eckenfelder said he doubts that there would be any antitrust concerns in such a merger, because neither Hutton nor Shearson commands a very large share of the brokerage business.
Among other possible suitors named are Equitable Life Assurance Society of the U.S. and Trans-America Corp.
Perrin Long, a brokerage analyst with Lipper Analytical Securities, said “it is quite possible” that Hutton will sell its insurance company. Long speculated that Hutton might consider selling Hutton Life for $350 million to $400 million and redeploying the capital into its broker-dealer operations to earn a higher rate of return.
Tax Concern Noted
If Hutton intends to sell the insurance operations, he added, it will probably try to complete the deal this year, since capital gains will be taxed as ordinary income beginning next year.
Moreover, Long said, if Hutton intends to sell out to a mutual insurance company, it would hold out for more money, since mutuals have no stock to give Hutton shareholders in exchange for their holdings. Because the mutuals would thus have to pay cash, Hutton shareholders would have to pay more tax on the deal than if they got some of the payoff in stock.
Long said that, in a stock deal, Hutton probably would be willing to sell out for twice the book value of its stock. But for the higher-taxed cash, it probably would demand 2.5 times that value, which at the end of June was $27.32 per share, he said.
