Smith Barney, Warburg Group May Merge : Securities: A takeover would give the New York-based firm a significant presence in Europe.

Smith Barney Inc., which has struggled to expand its securities and investment banking empire overseas, is reportedly holding talks with London-based S.G. Warburg Group about a possible merger.

The largest British investment bank has been the subject of takeover speculation since late December, when a planned merger with New York-based Morgan Stanley & Co. collapsed amid a dispute about the value of Warburg’s investment management company, Mercury Asset Management.

Robert Greenhill, Smith Barney’s chairman and chief executive, and Sanford I. Weill, chairman of the firm’s parent, Travelers Group Inc., were in London on Monday to meet with Warburg officials, a person familiar with the talks told Bloomberg Business News.

New York-based Smith Barney has been scouting for a European investment bank to complement its extensive domestic network of more than 11,000 retail brokers. Earlier this year, the firm teamed with Dutch bank ABN Amro Holdings in an unsuccessful bid for the assets of Barings.

“Smith Barney’s retail presence and the Warburgs’ presence in Europe creates a possible investment banking powerhouse,” said Ronald Chernow, author of “The Warburgs.”

At Smith Barney’s Piccadilly Circus office, a reporter was told that Greenhill and Weill were in town for a “fleeting visit” and were too busy to reply immediately to questions. Spokesmen for Warburg and Smith Barney were not available for comment.

On the London stock exchange, Warburg shares have risen 3.4% since Friday on takeover speculation. Travelers Group shares fell 12.5 cents on Monday to $41.25 on the New York Stock Exchange.

Greenhill’s ties to Warburg go back to the executive’s strong friendship with former Warburg CEO Lord Simon Cairns. The Greenhill and Cairns families vacation together on Nantucket Island, and their children have spent time with one another in the United States and Britain.

For Smith Barney, purchasing Warburg, which would fetch an estimated $4 billion, would be much easier than trying to build a significant investment banking presence in Europe from scratch, analysts said.

“From the point of view of investment banking, you need old, established, long-term relationships in Europe,” said Perrin Long, securities analyst at Brown Bros. Harriman & Co. “That is not to say they can’t build relationships, but it takes a hell of a long time. It makes sense to buy a firm like Warburg.”

The acquisition would also give Smith Barney a leg up in Asia, where Warburg has offices in Taiwan, Singapore, Malaysia, Thailand, Hong Kong, Korea, China and Japan.

So far, Smith Barney’s forays overseas have proven unsuccessful. Just 18 months after opening an office in Hong Kong, the firm shut it down, eliminating 25 corporate finance jobs in February. A month later, Joe Josephson, co-head of the Hong Kong office, said Smith Barney planned to buy an investment banking firm in the region.

The firm’s joint bid for Barings with ABN Amro was topped by one from Internationale Nederlanden Groep, another Dutch bank.

“We were extremely close to buying Barings, and it should be seen as a signal that we are serious and will be players in Asian markets,” Josephson told Hong Kong’s Sunday Morning Post in March.

Smith Barney was primarily interested in Barings for its research and emerging-markets units, Smith Barney executives said. Weill backed off talks to acquire part or all of Barings because the asking price was too high, one executive at the firm said.