U.S. Bancorp to Buy Piper Jaffray
U.S. Bancorp, the 15th-largest U.S. bank, on Monday agreed to buy Piper Jaffray Cos. for about $730 million in cash in order to lock in Midwestern customers with a broader array of financial services.
The transaction values Minneapolis-based Piper at $37.25 a share, or about four times book value--assets minus liabilities--a bigger premium than the already lofty prices that other banks paid this year to buy securities firms. Piper shares rose $6.63 to close at $36.38 on the New York Stock Exchange.
The acquisition comes as Depression-era restrictions that banned banks from investment banking and other securities businesses erode. U.S. Bancorp is paying a high price for Piper, because the number of available securities firms is dwindling as banks race to buy them, analysts said.
“The price that U.S. Bancorp is paying seems higher than usual,” said Amy Laguardia, senior vice president at Gray, Seifert & Co.
This year, BankAmerica Corp. bought Robertson, Stephens & Co. for 3.7 times book value and First Union Corp. bought Wheat First Butcher Singer for about 3.1 times book value.
Minneapolis-based U.S. Bancorp said the price is consistent with what other banks have paid for brokerage firms, and adds about $13 billion worth of assets that the bank will move to its money management unit.
“If you calculate what funds are going for these days, this is a little different situation than buying a retail brokerage house,” said U.S. Bancorp Vice Chairman Richard Zona.
After the purchase, U.S. Bancorp will have about $30 billion in mutual fund assets, with total assets of about $65 billion.
Shares of U.S. Bancorp, a leading commercial bank in 17 states stretching from Minnesota to Washington, rose $1.75 to close at $115 on the NYSE.
U.S. Bancorp executives said the acquisition will allow it to offer investment banking and institutional and retail brokerage services to about 40,000 companies through a new unit called U.S. Bancorp Piper Jaffray Inc. The subsidiary will employ almost 1,500 brokers, ranking it as the nation’s 11th-biggest brokerage firm, according to the Securities Industry Assn.
“This is a natural addition to our overall strategy and allows us to provide full service to our customer base,” said John Grundhofer, president and chief executive of U.S. Bancorp.
Piper’s decision to sell the firm comes exactly two months after the company settled the final class-action lawsuit related to allegations that it misrepresented the risks of some of its bond mutual funds.
U.S. Bancorp said the acquisition of Piper, which still needs approval from Piper shareholders and regulators, is expected to close in the second quarter of 1998.
