First Boston Corp., faced with increasing competition from its sister company, Financiere Credit Suisse-First Boston, will merge with the London-based firm in a $1.1-billion deal.
The merger, approved by First Boston's board and announced Sunday, follows six months of negotiations.
"The new structure will help the two organizations overcome strains that have developed in their relationship because of the far-reaching changes in the global marketplace," the firms said in a statement.
The combined entity, which will be privately held, is to be called CS First Boston Inc. and headquartered here. The merger will involve buying out First Boston's existing public shareholders at $52.50 a share in cash, a total buyout cost of $1.1 billion.
44.5% Owned by Credit Suisse
The Swiss banking conglomerate Credit Suisse will own 44.5% of the combined new entity, giving it effective control and the largest foreign stake in a major Wall Street securities house.
Credit Suisse will also become the only commercial banking concern to control a major securities house. Banks are prohibited in the United States from holding such large stakes in securities firms, as a provision to separate commercial banking and securities underwriting activities.
First Boston and Credit Suisse created Financiere Credit Suisse-First Boston as a joint venture in 1978.
Credit Suisse, among Europe's largest banking companies with almost $68 billion in assets at the end of last year, is able to take the stake because it held its interest before the law against such holdings took effect. Staff at the Federal Reserve approved the arrangement last week, the New York Times reported Monday.
The merger of the two firms, both among the world's largest providers of financial services, is part of a trend toward partial foreign ownership of top U.S. investment houses.
Peter T. Buchanan, First Boston's chief executive, said the firm is negotiating to bring in other foreign investors to purchase 30.5% of the new entity.
Unidentified Friendly Investor
Buchanan indicated that the additional investors would be from Japan or elsewhere in the Pacific Basin to give the firm better contacts in that market.
Until other investors are found, the 30.5% stake will be bought and held by a friendly investor, First Boston said.
In an unusual step, the firm refused to name the friendly investor. It said it would be identified before the merger is completed.
First Boston has suffered several setbacks in the last two years, including the departure in February of its two best deal-makers, Bruce Wasserstein and Joseph Perella. The men left to form their own investment bank.
Among other troubles, the firm had a loss of about $100 million in trading risky options on Treasury bonds in the summer of 1987 and had another $50 million loss in trading mortgage-backed securities. Its mortgage securities chief, its head of municipal finance, its head of risk arbitrage, seven members of its leveraged buyout group and several others either left or were asked to leave, the Wall Street Journal said.
The merger will shake up senior management. Credit Suisse Chairman Rainer E. Gut, 55, who has been outspoken in his displeasure with aspects of First Boston's performance, will become chairman of CS First Boston upon completion of the transaction.