Shares of American Express Co. soared 9% to $83 Thursday amid continuing reports that the company is in talks to be acquired by Citicorp.
One source said the companies had been in meetings Wednesday to discuss strategy in connection with a merger. But others discounted the rumor, which has surfaced repeatedly in recent weeks.
"They're the two biggest credit card players in the industry. Citi wants asset management, so there you are. But this rumor has a life of its own, and I guess that's the way it's going to be," said Henry C. Dickson, bank analyst at Smith Barney Inc.
Citicorp spokesman John Morris said the company does not comment on market speculation, and noted that chairman John S. Reed's acknowledgement of talks with American Express at Citicorp's annual meeting in April was the last public statement on the matter.
American Express declined to comment.
The market, however, appears to be buying the rumor. Trading volume in the stock totaled 1.7 million shares Thursday, 13% above its average daily volume. Trading in July and August call options on American Express was unusually active.
An industry consultant, who preferred to remain anonymous, said he believes "a merger will happen." But he said the deal is "too big and there's too much complexity to pin a time on it."
Some analysts estimate the company would sell for $40 billion, making it one of the biggest mergers in corporate history.
"American Express is one of the few U.S. companies that would add sufficiently to Citicorp's existing business, to justify their using their capital" in such a rich market, said Diane Glossman of Salomon Brothers.
But she noted that the two could marry only if they can find ways around Visa and MasterCard's bylaws that forbid their members from issuing American Express.
"I have a hard time believing those rumors," said Lawrence Cohn, analyst with Ryan Beck of West Orange, N.J. "Is Citibank enough of a gorilla that they can change (Visa's) rules?"
He wondered if the deal would be worth the price. "Do you convert Amex cards to Visa?" he asked. Though closing down all the American Express' clearing operations would offer "huge cost savings," the franchise would lose money, because American Express charges a much higher discount rate to merchants than do Visa and MasterCard.
He also said the Department of Justice "might have something to say. That's an awful lot of market share in one place." Lisa Fickenscher and Aaron Elstein contributed to this report.
