Bloomberg News
NEW YORK - Axa SA, the world's biggest insurer, is in talks to sell Donaldson, Lufkin & Jenrette Inc. to either Credit Suisse First Boston or Lehman Brothers and may reach an agreement by this weekend, said people familiar with the situation.
Emmanuelle Isnard, a spokeswoman for Paris-based Axa, which owns 71% of the seventh-biggest U.S. investment bank, declined to comment on a takeover. She said, though, that Donaldson Lufkin, "is not part of our core business."
Donaldson Lufkin did not return calls. Spokesmen for Lehman and CS First Boston declined to comment.
"DLJ does not have the smooth earnings that Axa is looking for, and if they were to sell it would be to smooth out their earnings stream," said David Williams, manager of U.S Trust Co. of New York's $1.5 billion Excelsior Value & Restructuring Fund, which owns 630,000 Donaldson Lufkin shares.
Axa is beefing up its money-management business, which yields steadier profits than investment banking without putting the company's own capital at risk. Axa's Alliance Capital Management Holding LP in June agreed to pay $3.5 billion for Stanford C. Bernstein Inc., a money manager known for its research and investments in undervalued shares.
"Axa would, I think, prefer to cash in here and invest in something with more stable revenue like asset management instead of an investment bank," said Philip Orlando, chief investment officer at Value Line Asset Management, with $7 billion under management.
"If their primary focus is smoothing revenue stream, the buy side makes more sense than the sell side." Value Line owns 200,000 Donaldson Lufkin shares, he said.
For a buyer, Donaldson Lufkin would provide the No. 2 position in the U.S. high-yield bond business and ownership of the Pershing unit, one of the biggest processors of stock trades, in addition to its equity and mergers practices.
Merging Credit Suisse First Boston and Donaldson Lufkin "would make sense from CS First Boston's point of view," said Scott Vergin, who helps oversee $9 billion at Lutheran Brotherhood Inc. in Minneapolis, which owns 280,000 Donaldson Lufkin shares. "It would make them a strong competitor to Goldman, Morgan Stanley, and Merrill."
Donaldson Lufkin has the fastest-growing work force and the highest costs in the industry. Along with growth from its DLJ Direct Inc. online brokerage, the firm's number of employees nearly doubled in the past four years to about 11,300, as it raced to catch up with rivals.
Its compensation costs accounted for 54.6% of net revenue in the second quarter, more than any major firm after Paine Webber's 59.5%. That compares with 50% at Goldman Sachs, 44% at Morgan Stanley, and 51.4% at Merrill Lynch.
A sale would come at a moment of weakness for Donaldson Lufkin, whose position in the high-yield bond business has eroded this year as the market slumped. In the second quarter, its earnings were little changed because of the slumping U.S. market, while rivals offset the domestic slide with gains overseas.
Donaldson Lufkin, the top-ranked high-yield bond underwriter for the past few years, slipped behind Goldman in the first half of the year, according to Securities Data Co.
"DLJ is tied to the high yield market that's been depressed," said Mr. Vergin. "Also they haven't been getting the investment banking deals that have been going to the big players."
