Drexel Wants Suitors Not to Solicit Brokers
Drexel Burnham Lambert Inc. is requiring interested bidders for its 1,100-member retail brokerage unit to promise not to raid the department for one year if a deal falls through, Wall Street sources said Wednesday.
One firm said it refused to join the bidding because of the strict terms being applied by Drexel, which announced a major restructuring Tuesday amid ongoing negative publicity following two major securities fraud settlements.
Also Wednesday, the head of a state securities committee monitoring Drexel said dumping the retail brokerage could save Drexel the embarrassment of having its securities license stripped in many states.
Drexel has contacted some 10 firms about buying the division, but three--Shearson Lehman Hutton, Dean Witter Reynolds and Bear, Stearns & Co.--said they’re not interested.
“We declined because we questioned the appropriateness of this auction process for a financial services company where clients and professionals are the key assets,” Dean Witter said in a statement.
Drexel is forcing any firm that wants to examine the retail unit to sign a letter stating that it won’t “directly or indirectly solicit the services” of anyone in the division for one year, said a Wall Street source who declined further identification.
Firms that submit to the accord can review a package of information provided by Drexel on Thursday and Friday and must submit a bid by Saturday, the source said. Analysts have placed the value of the department at between $50 million and $200 million.
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The requirement is designed to block other firms from raiding Drexel’s 1,100 brokers--many of whom vented their anger at Drexel Chief Executive Frederick H. Joseph during a session on the firm’s internal communication system after the announcement.
Officials at other firms said many Drexel brokers had contacted them looking for jobs before the announcement, and several firms were reported Wednesday to be negotiating with brokers.
“Putting them up on the auction block with no firm bidder disclosed gives them great incentive to pursue their individual fortunes,” one Wall Street executive said. “Probably as we speak there’s some very active cherry-picking going on.”
Drexel’s retail unit accounts for about 10% of the private firm’s business. At its peak, the department had 1,300 brokers, but Drexel didn’t replace defectors or retirees because of the October, 1987, stock market crash and the government probes, a Drexel spokesman said.
Drexel said it also is abandoning its business in municipal securities, over-the-counter stocks, and research and transactions in foreign securities. The restructuring will cut Drexel’s 9,100-member work force by about a third.
