Paine Webber to Use Cash for Acquisitions

Paine Webber Group, the latest Wall Street beneficiary of Japan’s financial clout, said Tuesday that it will use some of the $300-million cash infusion it received from Yasuda Mutual Life Insurance Co. for acquisitions.

“We’re looking at brokerages and asset management firms,” Paine Webber Chairman and Chief Executive Donald Marron said.

On Monday, Paine Webber, in a bid to maintain its independence and substantially boost its capital, agreed to give Yasuda an 18% voting stake in the firm in exchange for $300 million. The agreement limits Yasuda’s stake in the company to a maximum 25% for the next 20 years.

Asked if the acquisitions would include only smaller, regional brokerage houses, Marron replied: “Not necessarily,” leaving open the possibility of the company targetting national brokerage firms like Thompson McKinnon Inc., Edward Jones & Co., or Advest Group Inc.

Hutton Not Considered

Indeed, Marron said, Paine Webber already has held informal talks with several firms. He added that the company’s new back office operations center in New Jersey will easily accommodate any new acquisitions.

E. F. Hutton Group, which last week announced that it was seeking a buyer or a capital infusion, is not being considered, he said.

The Yasuda investment is the third time since last year that Japanese financial firms have taken major stakes in U.S. investment houses. In 1986, Sumitomo Bank Ltd. bought a 12.5% stake in Goldman, Sachs & Co. for $500 million, while earlier this year Japan’s Nippon Life Insurance Co., bought 13% of Shearson Lehman Bros. for $538 million.

Paine Webber, after a strategy outline presented to directors in June, decided to look for acquisitions, seek an outside investor and shift the emphasis on many operations, Marron said. The firm decided to “de-emphasize” its municipal bond department and its commercial paper business, which was transferred to Citicorp.

Marron said areas that will be bolstered as a result of the June strategy session and the Yasuda investment include trading areas, investment banking, asset management, and retail and institutional sales.

Yasuda, which Marron said was the only firm Paine Webber talked with about a capital influx, will likely place additional assets with Paine Webber’s asset management unit, Mitchell Hutchins Asset Management Inc. The unit has close to $15.5 billion under management, Marron said.

Paine Webber preferred Yasuda, whose $21 billion in assets makes it Japan’s seventh-largest insurer, to a Japanese brokerage firm, which is considered a competitor, while Glass-Steagall regulations made banks undesirable partners, Marron added.

Paine Webber grew far less than other brokers during the past two years as the firm realigned senior management and restructured, Marron noted. The firm froze hiring Oct. 20, he said, but with the capital influx, it plans to rescind that freeze by January.

Marron said talks with Yasuda, which began Aug. 19, were not halted by October’s stock market plunge, although the price of the stake was lowered.

Marron said Paine Webber lost $16.5 million in October from its risk arbitrage operations and a reserve set aside for bad debts in its retail system.