Prudential-Bache to Buy McKinnon Unit : Deal Reached on Retail Brokerage; Merger Dropped

Prudential-Bache Securities Inc. will buy the retail brokerage offices and customer accounts of Thomas McKinnon Inc. in a transaction announced today that replaces a full merger of the securities firms.

Prudential Securities Group on Friday called off its plan to purchase all of Thomson McKinnon, which could have created the nation’s third-largest brokerage operation.

The deal, announced June 13, was canceled after Prudential discovered problems with Thomson McKinnon’s financial records, including a reported $80-million difference between its liabilities and assets.

Retail Brokerage Deal

But negotiations over the weekend yielded the retail brokerage deal, under which Prudential-Bache will take over Thomas McKinnon’s 154 branch offices and 2,000 brokers. Prudential-Bache is the brokerage arm of Prudential Securities, which in turn is owned by Prudential Insurance Co. of America.

“When it became clear a merger was not feasible, rather than parting ways, we worked together to develop this new arrangement,” Prudential-Bache Chairman George L. Ball and Thomson McKinnon Chairman J. Ronald Morgan said in a joint statement.

People familiar with the deal said today that Prudential-Bache will pay $60 million for the offices and accounts plus $60 million over three years as part of an incentive package to keep Thomson McKinnon brokers from leaving.

Prudential-Bache also said it plans to purchase about a 5% interest in Thomson McKinnon Asset Management LP, the firm’s only publicly traded entity, which operates its money and investment management business.

Prudential-Bache said it will distribute mutual funds managed by Thomson McKinnon Asset Management.

Thomson McKinnon, founded in 1885, has struggled since the 1987 stock market crash and repeatedly entered into sale negotiations with other major Wall Street firms.

Looking for Buyer

Last October, Thomson McKinnon, the nation’s ninth-largest brokerage, said it was looking for a buyer to purchase the 23% stake in the privately held company owned by the Hartford Insurance Group, a unit of ITT Corp. Thomson McKinnon, considered a mid-size brokerage, has 4,700 employees.

Thomson McKinnon said it planned to sell the firm’s remaining assets, such as its capital markets, Hong Kong and administrative operations, in the coming months, marking an end to the firm.