PaineWebber Reportedly Being Bought by UBS

PaineWebber Group, the fourth-largest U.S. brokerage and one that’s eschewed the long-running merger trend among its peers, reportedly is close to being bought by the Swiss banking group UBS for about $12 billion.

The deal, as reported by the Financial Times of London today, would value New York-based PaineWebber at about $73 a share, a fat premium over the stock’s closing price Tuesday. PaineWebber closed at $49.94, up $3.81 for the day in heavy trading on the New York Stock Exchange.

Rumors of the merger helped fuel a broad rally in brokerage stocks Tuesday.

The deal, which is expected to call for an exchange of UBS cash and stock for PaineWebber’s shares, might be announced as early as today, the newspaper said.

UBS, Switzerland’s biggest bank and one of the world’s largest, listed its stock on the NYSE in May, a move many saw as a step in its strategy to buy a major U.S. brokerage firm to complement its ownership of the global investment bank UBS Warburg.

Officials at PaineWebber and UBS weren’t available for comment Tuesday. UBS’ shares on the NYSE inched up 25 cents to $148.75.

PaineWebber is best known for having a retail sales force that caters to the affluent. The firm has about 8,400 brokers in 318 offices worldwide, and it oversees roughly $500 billion in customer assets.

Since Donald Marron became PaineWebber’s chief 20 years ago, the firm has largely stayed out of the deal fray while many of its rivals merged.

For instance, one mega-merger in recent years created Morgan Stanley Dean Witter & Co., and another put Salomon Smith Barney under the ownership of Citigroup.

Lately, banks have become increasingly aggressive in buying brokerages, as long-standing government barriers to mergers have been removed.

PaineWebber’s lagging stock price had increased speculation that the company might finally entertain a buyout this year, and even some PaineWebber executives had subtly indicated recently that they were more receptive to an offer.

Although PaineWebber’s stock has outperformed the benchmark Standard & Poor’s 500 index over the past five years, it has badly trailed its peer group as measured by S&P;’s index of brokerages and investment banks.

Even at $73 a share, a UBS bid for PaineWebber would value the firm at about 17 times estimated annual earnings. Historically, brokerage shares have traded for relatively low price-to-earnings multiples because of the cyclicality of the stock market. Yet PaineWebber’s earnings and return on assets have been climbing at a double-digit pace in recent years, and the firm has been building client assets at a 20% annual clip.

PaineWebber, founded 121 years ago, has about 2.7 million individual and institutional clients.