DALLAS -- A Dallas-based investment group has agreed to purchase a controlling interest in First Southwest Co. in a move that few expect to change the state's top financial advisory firm -- at least for now.
The investment group, FSW Holdings Inc., said it expects to close the deal by Oct. 1 and plans eventually to build up the company's financial advisory business outside Texas, begin underwriting more municipal issues, and develop a larger corporate business.
For now, though, the new ownership is not expected to affect 120 employees in the privately held firm's six Texas offices, or its blue-ship client list.
"The first thing we are going to do is take care of the home business. We consider that First Southwest does have a strong financial advisory business," said Tom Luce, a Dallas lawyer slated to become chairman and chief executive officer of the firm under the completed deal. "We think we're buying a quality company."
Mr. Luce is among the most visible members of the high-profile investment group that includes Dallas financier Robert Utley; Hill Feinberg, senior managing director in the Dallas office of Bear, Stearns & Co.; and Life Partners Group Inc., the life insurance affiliate of Hicks, Muse & Co., a local merger and acquisition firm.
Also, an undisclosed number of the firm's current stockholders will remain owners of First Southwest, which was founded in 1946 by the late Decker Jackson. Terms of deal were not disclosed, although it has been rumored that the arrangement is worth 1.5 times book value, or $18 million.
While executives at other brokerages had expected the sale, many said they were pleased the firm is not going to a national firm with formidable resources.
"Frankly, I'm glad they're remaining an independent regional firm. As one of those, I'm delighted," said Tom Masterson, chairman of Masterson, Moreland, Sauer, Whisman Inc. in Houston. "The worst thing that could have happened for us was if they were sold to a national firm."
Sources say FSW Holdings was the only group First Southwest has held serious talks with since speculation about a sale began this spring. Reported bidders included Dallas-based Rauscher, Pierce, Refsnes Inc. and a group led by Malcolm Lovett of Houston.
Asked how the new ownership might affect the firm's core financial advisory business, competitors said they expected little fallout immediately. "It sounds like business as usual," Mr. Masterson said.
He is not alone. "It's too early to tell," said Dale Henderson, senior vice president and manager of public finance at Rauscher Pierce. "In the short term, I see little effect, if any."
Mr. Henderson said the change could mean a more diverse municipal business for First Southwest and more competition with his firm, which has fought for market share with Rauscher Pierce in suburban Dallas in recent years.
As in the past, First Southwest Co. this year continued its dominance as the top financial adviser in Texas. The firm ranks sixth nationally, with 165 issues totaling $2.065 billion so far in 1991, according to Securities Data Co./Bond Buyer.
As an underwriter, the firm ranks number 181 nationally and 29th in Texas, with 16 issues totaling $21.4 million in deals this year. Observers expect that to change.
Historically, Texas-based firms were too capital poor to compete with Wall Street firms, but that has been changing. Such firms as Masterson Moreland and Rauscher Pierce have taken aggressive roles this year in underwriting -- a trend that is expected to continue.
As a financial adviser, First Southwest has served scores of Texas cities and schools that are infrequent, small issuers of debt. The core of their business has long been identified as a blue-chip list of issuers that include the city of Dallas, the Dallas-Fort Worth International Airport, and the Texas Turnpike Authority.
In an interview, Mr. Luce said the nationally known firm will continue with that emphasis, but he expects it will eventually expand its practice nationally.
He also said he expects to expand the firm's role as a municipal underwriter and to develop a corporate investment banking business, but he declined to discuss specific plans.
Observers said their greatest surprise was to see Mr. Luce take a leading role in the new ownership when his name had not cropped up during the months of speculation about a deal.
But not everyone was surprised.
"I can't think of a better match," said Ray Hutchison, bond lawyer at Hutchison, Boyle, Brooks & Fisher of Dallas and a friend of Mr. Luce's for 30 years. "I would envision that they would expand more heavily into the corporate sector, but Tom has a personal interest in public policy issues ... It's a perfect suit for Tom."
Mr. Luce is also known as a rainmaker at the powerhouse Dallas law firm of Hughes & Luce, with which he will continue an of-counsel relationship.
But Mr. Luce is widely known for his relationship with Texas billionaire H. Ross Perot and as a contendedr for last year's Republican gubernatorial nomination -- an effort he says he does not plan to repeat in 1994.
His high-profile style contrasts with the secretive reputation that First Southwest Co. has maintained for its 45-year history. Under the legendary Mr. Jackson, the firm never sought publicity and has operated in relative obscurity in Texas despite its prominence in the bond industry.
"I've had a personal interest in First Southwest for quite some time," Mr. Luce said yesterday. "About five years ago, I approached Decker Jackson about buying the firm. He said it was not for sale."
Efforts to negotiate a buyout or investment in the firm began after the death of in March of then-Chairman Rader McCulley. First Southwest officials have refused to discuss the future of the firm.
Asked about the planned change in ownership, First Southwest Co. Presidential Richard Litton yesterday responded, "We haven't changed our policy: No comment."
In a statement, officials said Mr. Litton would remain president, while Mr. Luce will assume the duties of chairman and chief executive officer and Mr. Feinberg will become vice chairman.
Other executives at the firm did not return telephone calls seeking comment. Outsiders have speculated that the firm might be sold because many of its long-time officers and stockholders were ready to retire and wanted to recoup their investment in the firm.
It is not yet clear which executives will remain as stockholders under the investment agreement. However, the cash-for-stock agreement will apparently buy out the estates of Mr. Jackson and Mr. McCulley, which jointly hold a controlling interest in the firm.
In a three-page statement announcing the agreement, the new investors note, "For some time the firm has been preparing to retire the capital of some of its long-time and founding shareholders."
