Shearson Lehman, Hutton Sign Agreement to Merge

Shearson Lehman Bros. today signed an agreement to acquire the E. F. Hutton Group for close to $1 billion, a merger likely to make the fast-growing Shearson the nation’s biggest stockbroker.

Shearson’s bold move to dramatically expand its business following the October stock market crash will more than double its offices and corps of registered stockbrokers.

But once the merger if completed, Shearson is likely to cut staff to create a combined company that is about equal in size to Merrill Lynch, the industry leader.

“The combination of the two companies creates an organization of unprecedented depth, diversity and strength in the securities industry,” said Shearson Chairman Peter Cohen.

He called the merger “a landmark in our strategy of expanding in all financial markets, particularly retail and the international arena.”

In a deal worked out in negotiations that went late into the day on Wednesday, Shearson will pay $29.25 for each of Hutton’s 34.2 million shares.

A year ago Shearson offered to buy Hutton for $50 a share in a $1.6 billion buyout. Hutton rejected that offer as inadequate. It was reported seeking $55 a share.

Since then the 83-year-old Hutton has struggled to stay independent, starved for capital and hurt by internal upheavals in recent years.

The October crash, while not a source of massive losses for Hutton, was the final blow that drove it to find a suitor and further diminished the firm’s market value.

Terms of the merger agreement call for Shearson to purchase up to 28.1 million Hutton shares for cash under a tender offer commencing within a few days.

The offer was expected to close early next year.

Last week, Hutton said it was looking for a merger partner or a substantial infusion of cash. The investment firm has been plagued with internal doubts about its future and fears of a crippling drop in its credit rating.

The Shearson-Hutton announcement said the merger agreement had been approved unanimously by directors of both companies.