Kidder Is Seeking First Executive Bids
The investment bank Kidder, Peabody & Co. is searching for a bidder to make an offer for the big Los Angeles-based life insurance holding company First Executive Corp., Wall Street sources said.
Kidder, a unit of General Electric Co., until recently was one of First Executive’s investment bankers. But Kidder is understood to be seeking a bidder on its own initiative. An official at First Executive confirmed that it no longer has an investment banking relationship with Kidder.
The Wall Street sources said Kidder’s motivation in looking for a bidder for First Executive stems from fear of potential liability. Kidder brokers formerly sold a significant amount of First Executive insurance products, including annuities, to its customers. First Executive lately has reported major losses in its $8-billion junk bond portfolio, and Kidder is said to be concerned about liability to customers if First Executive’s financial condition worsens to the point where its ability to pay insurance policy and annuity holders is jeopardized.
The sources said Kidder hasn’t yet obtained a commitment from any potential bidder. It couldn’t be learned late Friday whether GE might have any interest.
Kidder officials are said to be mindful of major lawsuits that brokerage firms faced in the mid-1980s when another large insurance firm, Baldwin United, filed for bankruptcy. Although First Executive’s stock price has plummeted recently, the company maintains that it is in a very strong financial position and denies that there is any real risk of defaulting on insurance or annuity claims. Most analysts seem to agree that there isn’t any immediate danger.
Kidder last year also served as co-manager, with Drexel Burnham Lambert Inc., of a public sale of First Executive securities in a “rights offering” that reportedly raised somewhat less than $300 million. A short while later, the company disclosed that the value of its junk bonds had dropped by at least $1.4 billion from the purchase price at which they had been carried on the balance sheet.
To realize part of the losses, First Executive announced that it was taking a $515-million charge against its 1989 fourth-quarter earnings and would report a substantial net loss for the full year.
The company disclosed Jan. 25 that the Securities and Exchange Commission was conducting an “informal” investigation of the $515-million writedown. The SEC was presumed to be interested in why the possibility of major losses from the junk bond portfolio was not disclosed to investors at the time of the rights offering.
At least one class-action lawsuit has been filed against First Executive by investors who bought securities under the rights offering. Kidder, as co-manager of the underwriting, conceivably could be exposed to liability in such a lawsuit as well.
A spokeswoman for Kidder declined to comment on whether the firm is actively seeking a bidder for First Executive or on any potential liability.
Fred Carr, First Executive’s chairman and chief executive, declined to comment on Kidder’s search for a bidder.
