Smith Barney Agrees to Buy 19 Drexel Offices
Drexel Burnham Lambert said Tuesday that it was unable to find a single buyer for all of its 43 retail brokerage offices and instead will sell 19 to Smith Barney, Harris Upham & Co., a unit of Primerica Corp.
Both sides refused to disclose the price.
Drexel had announced last week that the firm planned to get out of the retail brokerage business as part of a reorganization that would allow it to concentrate on its core businesses of “junk bonds” and investment banking. It had said it wanted to sell all of the retail offices as a single block. But Smith Barney agreed Tuesday to buy less than half of the offices, and Drexel said it now will try to sell off the rest individually.
Many Drexel Brokers Furious
A Drexel spokesman refused to say what would happen to the remaining offices if buyers aren’t found. Steven Anreder, the spokesman, said: “If we come to that, we’ll decide then.” The sale to Smith Barney includes only two of Drexel’s offices in California--in Encino and Palo Alto--and doesn’t include a number of others, among them the retail offices in Beverly Hills, Newport Beach and San Francisco.
Securities industry analysts have said Drexel’s difficulty in selling its retail business reflects the downturn in the retail brokerage industry in general in the wake of the October, 1987, stock market crash. Retail brokers mainly serve individual buyers of stocks and other securities.
In addition, the analysts have said, many Drexel brokers, furious that the firm decided to eliminate the retail operation, have gone off on their own to negotiate individual contracts with other brokerage firms, reducing the value of the Drexel offices.
The 19 offices that Smith Barney will buy employ about 500 of Drexel’s 1,100 brokers, formally called account executives. Drexel said the 19 offices are “virtually all among Drexel’s largest retail branches.”
A Smith Barney spokesman refused to say why the firm decided not to buy all of the Drexel retail offices. But in a written statement, the securities firm said about 30% of the branches it is buying will be in locations representing new markets for Smith Barney, and the rest are in large metropolitan areas that can support more than one office.
The acquisition will bring Smith Barney’s total number of branch offices to 99.
“This is unquestionably a unique opportunity to expand, on a very selective basis, Smith Barney’s penetration of the high net worth individual investor market,” said Frank G. Zarb, Smith Barney’s chairman and chief executive, in the written statement. Drexel’s brokers mainly served the wealthier segment of retail brokerage customers.
Newberg Pleads Not Guilty
Drexel’s decision to sell its brokerage operations came in the wake of the firm’s legal problems, including criminal charges and the recent settlement of a Securities and Exchange Commission lawsuit.
Eliminating its retail operations is expected to cut down on the separate legal actions that Drexel had anticipated would be filed by state regulatory agencies.
In a separate development Tuesday, former Drexel trader Bruce L. Newberg pleaded not guilty to racketeering and securities fraud charges.
He was named in the same indictment that was brought March 29 against former Drexel junk bond chief Michael Milken, who has already pleaded not guilty. Lawyers in the case said Tuesday that the case probably won’t come to trial until March, 1990. Newberg also is facing separate racketeering charges in another case, involving Princeton/Newport Partners, a small, now-defunct securities firm.
Drexel, commenting on the sale of the retail offices, called it “a major step in Drexel’s plans” to restructure.
A spokesman declined to say if Drexel officials were disappointed that the entire retail operation couldn’t be sold as a single block.
The spokesman said he didn’t know if firm offers were pending for any of the remaining 24 offices.
Drexel said the sale is subject to approval by the New York Stock Exchange and other regulatory agencies and probably would be completed by the end of May.
In addition to the two California offices, Smith Barney will buy two Drexel offices in Manhattan, and those in Boca Raton, Miami Beach and Miami, Fla.; Baton Rouge and New Orleans, La.; Boston; Denver; Houston; Paramus, N.J.; Providence, R.I.; Rockville, Md.; St. Louis; Scottsdale, Ariz.; Washington, and White Plains, N.Y.
