New Wave of Finance Mergers Seen


The merger mania already consuming securities firms, driven largely by deregulation and the globalization of capital markets, is expected to gain momentum in the wake of the proposed combination of Morgan Stanley Group and Dean Witter, Discover & Co., analysts said Wednesday.

“The whole financial services landscape will have lots of new creative combinations,” said Marshall Lux, who co-heads investment banking and wholesale financial services with the McKinsey & Co. consulting firm in New York. “Everyone is thinking about everyone, trying to get a seat at the global table.”

The next mergers could involve several types of combinations, analysts said. Major global institutions, such as Germany’s Deutsche Bank, could link up with retail-oriented firms with large armies of traders. Full service brokerages, such as Merrill Lynch & Co., may join with discount brokerage houses, which charge less because they offer no research or advice and don’t underwrite securities.

While rumors abound, likely takeover targets could include PaineWebber, Prudential Securities or St. Louis-based A.G. Edwards & Sons. All have large networks of more than 5,000 brokers selling to individuals, analysts said. A firm that focuses on serving large corporate clients, such as Goldman, Sachs & Co. or Lehman Bros. Holdings Inc., could purchase or form alliances with one of these retail-oriented firms, analysts said.


There are likely to be alliances similar to the one recently announced between Salomon Bros. and Fidelity Investments. That venture will allow customers of Fidelity’s discount brokerage unit to buy as much as 10% of the shares in public offerings that Salomon arranges.

Salomon, encouraged by its agreement with Fidelity, might purchase another retail-oriented firm such as PaineWebber, some analysts have predicted. Such a deal would help Salomon compete better with industry leader Merrill Lynch. PaineWebber, which saw its stock jump more than 16% since Friday as rumors circulated that the firm would be a takeover target, saw its stock drop $2.75, to $36.125, in trading Wednesday.

Another combination could be Lehman, with its large bond-underwriting business, merging with A.G. Edwards to take advantage of its strong retail network.

There is also expected to be increasing consolidation between money management firms. Morgan Stanley bought Van Kampen American Capital Inc., a major mutual fund company, for $745 million last year. Also last year, Merrill Lynch purchased Los Angeles-based Hotchkis & Wiley Inc., a relatively small but respected money manager.


Still, while the mergers are predicted to continue, they aren’t expected to be easy fits. Different types of securities and investment banking firms have vastly different corporate cultures and compensation structures. “There are enormous opportunities and enormous challenges with these kinds of combinations,” said Lux.