Widespread layoffs are expected at Kidder, Peabody Group Inc. following PaineWebber Group Inc.'s long-anticipated acquisition of certain assets of the firm from General Electric Co.
PaineWebber strongly covets Kidder's retail business, which employs 1,150 brokers in 50 branch offices, Wall Street observers said. But overlap between the two firms clearly exists in other areas, such as underwriting, public finance, trading, and sales, leaving the fate of Kidder's remaining workforce far more tenuous.
Wall Street sources speculated yesterday that as much as 45% of Kidder's 5,000-person workforce, or 2,250 employees, would eventually be dismissed as PaineWebber selectively incorporates Kidder's businesses with its own.
"It will take months to answer fuller details pertaining to individuals and departments," said a spokesman for Kidder Peabody when asked about the rumored. layoffs.
The spokesman did say, however, that the 10% "across the board" reductions announced last week as part of a restructuring of Kidder Peabody are proceeding.
Last week, as the restructuring was announced and rumors of a pending deal with PaineWebber intensified, Kidder Peabody employees were reportedly preparing for wide cuts. Meanwhile, General Electric Was said to have offered stock options to some Kidder executives that could be exercised only if the executives stayed with Kidder for 18 months, even if the firm was sold. Meanwhile, PaineWebber employees ,in the municipal bond department were said to be wondering about the effects of the acquisition.
PaineWebber officials would not comment on which departments or how many Kidder employees will be retained. A spokeswoman said
PaineWebber is "working on integrating the two firms the best way possible."
The terms of the deal were officially announced yesterday. In addition to Kidder's retail business, PaineWebber will acquire the firm's asset management, investment banking, equity research, international and domestic fixed-income, residential and commercial mortgages, high-yield, and listed domestic futures businesses. Those assets are valued at approximately $580 million. PaineWebber also has the right to negotiate for the purchase of other businesses retained by General Electric.
For its stake in Kidder, GE will receive PaineWebber common and preferred securities valued at $670 million, 25% ownership of PaineWebber, and a seat on the firm's board of directors.
The securities exchanged in the transaction are as follows: 21.5 million of PaineWebber common voting shares, valued at about $320 million; $100 million of 6% convertible preferred stock, convertible at $18.13 per share; and $250 million of 20-year 9% preferred stock.
"By combining PaineWebber and Kidder Peabody, we will achieve, in one move, many of the goals and objectives we set out to accomplish by the end of the decade: critical mass in retail distribution, additional assets under management, strengthened investment banking, greater global reach -- particularly in fixed income -- and enhanced earnings power," said Donald B. Marron, chairman and chief executive officer of PaineWebber, in a prepared statement.
For General Electric, the deal allows the company to retain a stake in the brokerage industry while unloading Kidder Peabody, which has been dogged by scandal and lackluster returns since GE purchased it in 1986.