Kidder goes to Wall Street rival in deal worth dollars 670m

KIDDER Peabody became the latest in a string of Wall Street firms to lose its independence yesterday, agreeing to merge its core operations with the rival PaineWebber group in a deal that puts its net value at less than dollars 90m ( pounds 58m).

Kidder's parent, the American industrial conglomerate General Electric, will receive the equivalent of a 22 per cent stake in PaineWebber for the Kidder businesses and their inventory of about dollars 580m in marketable securities. But GE will assume all liabilities associated with the 'phantom trading' affair that has dogged Kidder since April.

It will also retain Kidder's dollars 6.7bn portfolio of under-performing mortgage securities that it transferred to its GE Capital division earlier this month.

The acquisition of Kidder's 1,200-member retail sales force will vault PaineWebber from fifth to fourth place among US brokerages, displacing Prudential Securities and bringing its total assets to almost dollars 200bn.

PaineWebber will also pick and choose among Kidder's investment bankers, traders and analysts. As many as half of Kidder's 5,000 employees are expected to lose their jobs.

PaineWebber will issue about dollars 670m worth of securities in all to pay for the deal, including dollars 320m in voting equity, dollars 100m in convertible preferred shares and dollars 250m in preferred shares.

The deal, negotiated over the weekend and signed yesterday, allows GE - America's most profitable industrial corporation - to keep its hand in the securities business but marks the end of the road for 130-year-old Kidder Peabody, which it purchased in 1986 for dollars 600m. The speed of its demise stunned even Wall Street veterans, who in the past decade have witnessed the collapse of half a dozen big firms that ran foul of America's tough securities regulators, notably Drexel Burnham Lambert, EF Hutton and Thomson McKinnon.

While Kidder will probably end up costing GE more than dollars 1.7bn by the time it has accounted for dollars 500m worth of goodwill at the end of the year, the firm seemed only a few months ago to be on the path to solid profitability.

But in April Kidder shocked the industry by announcing that its entire profit for last year had come as the result of an accounting fraud, allegedly perpetrated by its 36-year-old chief government securities trader, Joseph Jett.