Mellon Bank Corp., said Monday that it has agreed to buy the Boston Co., a unit of American Express Co.'s Shearson Lehman Brothers, for $1.3 billion in cash, plus stock and warrants worth $152 million.

The $1.45 billion price topped several bids for the coveted trust and money management company. Other suitors included Chase Manhattan Corp. and PNC Financial Corp., according to sources.

Bigger Market Shares

The deal raises Mellon's market share in several fee-generating, securities-related businesses it has been emphasizing -- including master trust, custody, and investment management. It will also raise the Pittsburgh banking company from a negligible position in mutual fund administration to $136 billion in accounts.

Mellon said the Boston Co. will bring it to $115 billion in assets under management and place it among the five largest providers of trust, investment, private banking, and mutual-fund-support services.

Meanwhile, Shearson Lehman and American Express will get much-needed capital -- and almost 5% of Mellon's stock, worth $115 million.

Ten-year warrants, contributing $37 million of the purchase price, permit up to 3 million Mellon shares to be bought for $50 a share.

Mellon's stock fell $1.125, to $40.26 Monday, while shares of American Express rose 87.5 cents, to $22.625.

Analysts were concerned that Mellon may have overpaid, but most saw strategic advantages in the deal.

Trust and investment management have been among the few lucrative and stable parts of banking, and companies the size of Boston Co. - with $9.2 billion in balance-sheet assets and $298 billion under management or administration -- do not come on the block very often.

Mellon said the acquisition would add only $3.3 billion to its midyear balance-sheet total of $29.2 billion as Boston Co. money-market investments and securities holdings are sold.

Increased Assets, Revenues

The deal will boost Mellon's revenues from trust, investment, and private banking to 50% of the total, from 41%. Total assets under management or administration will increase 55%, to $667 billion.

Its principal competitors in the various businesses include State Street Boston Corp., Bank of New York Co., Bankers Trust New York Corp., and Chase.

The Boston Co. is coming off four tumultuous years. It has been shrinking and cleaning up its balance sheet since its president, James von Germeten, was force out in 1989 after it was discovered the company had misstated 1988 earnings.

Problems in Britain

Bad assets now total 3.1% of loans and foreclosed real estate. Mellon's 4.4% ratio at June 30 thus will improve.

A source familiar with the deal said many Boston Co. problem loans are in a $129 million mortgage portfolio in the United Kingdom and a loan valued at $100 million to Olympia & York. Future losses on the British portfolio reportedly will be split evenly, and the O&Y loan will remain an American Express risk.

Thomas Butch, a Mellon spokesman, said the company will take a $112 million restructuring charge when the deal closes, probably in the first quarter of 1993, pending regulatory approvals.

Frank V. Cahouet, chairman and chief executive of Mellon, said Boston Co. should add "something less than 5%" to Mellon's 1993 earnings and "in excess of 10%" to 1994 earnings.

The names of Boston Safe its subsidiary, Boston Safe Deposit and Trust Co., will be retained, he said, and they will be overseen by W. Keith Smith, a Mellon vice chairman.

Boston Co.'s president, William J. Nutt, will remain with the company. John R. Laird, chairman and chief executive, will resign but remain president of Shearson Lehman Brothers.How Mellon Would GrowDollars in billions Before After acquisition acquisition Balance sheet assets $29.2 $32.5Managed assets Mutual fund administration * $136 Institutional trust and $277 $400 custody Institutional Investment $67 $96 management Private banking $25 $35*NegligibleSource: Mellon Bank Corp.

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