Travelers to Sell Dillon Read at a Loss : Insurance: Analysts say the company needed to raise capital after heavy losses in real estate investments.

From Associated Press

The Travelers Corp. announced Tuesday that it will sell Dillon, Read & Co., the 161-year-old investment bank, to the firm’s management and the British merchant bank Barings.

Travelers, the insurance giant, would receive $122 million from the proposed sale, which is subject to regulatory approval. It bought Dillon Read for $157.6 million in 1986.

The company said it wants to focus on its core insurance, managed care and investment businesses.

The return of the venerable American investment bank to its roots as a private entity marks a change from the 1980s, when several major Wall Street firms were sold to big corporations.


Dillon Read management, led by Chairman John P. Birkelund, and 41 managing directors would acquire a 60% stake in the company for $39 million, said an individual familiar with the deal who asked not to be identified.

Barings agreed to pay $26 million for a 40% stake. In addition, Barings said it also would buy $52 million in preferred stock in the investment firm. Barings said the purchase would be financed through a special stock sale.

Additionally, a $5-million dividend would be paid by Dillon Read to Travelers, accounting for the $122-million total.

The deal gives Dillon Read, one of the oldest U.S. investment firms, greater influence in international investment banking. It also links it with a British firm that dates to 1762.


Dillon Read was among Wall Street’s elite in the 1960s and 1970s. But its influence was reduced with the growth of publicly owned firms and acquisitions by large parent companies. Dillon Read ranks 25th among U.S. investment firms in total capital, according to the Securities Industry Assn.

The firm itself has said it had disappointing profits last year, and the industrywide decline in mergers and acquisitions has hurt the firm.

Still, the spinoff contrasts with the purchases in the 1980s--and recent bailouts--of investment firms by big corporate parents, such as Shearson Lehman Bros. Inc. and Prudential Securities Inc. Other firms went public by selling stock, such as Salomon Inc.

Travelers wanted to sell Dillon to raise capital. The insurance company last year added $650 million to its reserves because of heavy losses in real estate mortgages and investments.