Swiss Bank Corp. said it will buy U.S. investment bank Dillon Read & Co. for $600 million in stock to boost the U.S. mergers-advisory business of its investment banking arm, SBC Warburg.
Swiss Bank said it would merge Dillon Read with SBC Warburg to form a new investment bank called SBC Warburg Dillon Read. The announcement came only hours after Dutch banking company ING Group withdrew from talks to buy the 75% of Dillon Read that it doesn't own.
"The combination of Dillon Read's extremely high-quality advisory franchise and focused expertise in both debt and equity markets in the U.S., together with SBC Warburg's own strength in Europe, Latin America, and Australia, will create enormous benefits for our clients and shareholders alike," said Hans de Gier, chairman and chief executive of SBC Warburg.
The deal is the latest in a series of takeovers and mergers on Wall Street as the $100 billion-a-year business of trading securities and advising on mergers consolidates.
Last month, Bankers Trust New York Corp. bought Alex. Brown & Sons Inc. for $1.7 billion. In February, Morgan Stanley & Co. and Dean Witter, Discover & Co. merged in a $10 billion transaction.
European banks are among the most eager investors in U.S investment banks as they seek to expand their influence into the world's largest financial market.
National Westminster Bank PLC bought U.S. fixed-income company Greenwich Capital Markets last year. Other banks, including ING, Dresdner Bank AG, and Deutsche Bank AG, are considered likely acquirers and have been linked to companies such as Lehman Brothers Inc. in the past few months.
The purchase of Dillon Read, one of Wall Street's last partnerships, would give SBC Warburg a big boost to its U.S. presence by adding a mergers and acquisitions specialist to SBC Warburg's equities and fixed-income business.
The 165-year-old partnership counts Anheuser-Busch Cos., General Mills Inc., and Levi Strauss Associates Inc. among its clients. Dillon Read has 52 partners and a total of 715 employees.
SBC Warburg has been growing in the United States ever since Swiss Bank Corp. bought S.G. Warburg Group PLC in 1995, after Warburg's failed attempts to merge with Morgan Stanley. It has not had much success in any of its main businesses, however, and trails rival Credit Suisse Group, which owns Credit Suisse First Boston.
Though SBC Warburg ranked fifth among advisers in U.K. mergers and takeovers last year, it was ranked 17th in the United States, according to Acquisitions Monthly magazine and Securities Data Corp.
Analysts said the purchase would also boost SBC Warburg in its global battle with Swiss banking rivals Credit Suisse Group and Union Bank of Switzerland.
The move "won't decide the war, but it gives them a better foothold in the U.S. and certainly strengthens SBC's standing in cross-border business," said Hans Kaufmann, a fund manager and analyst at Bank Julius Baer & Co. AG. "So far, SBC's market share in the U.S. has been rather small."
Dillon Read would gain access to SBC Warburg's global fixed-income and equity businesses, which would increase the international opportunities it could offer to clients.
Though Dillon Read specializes in advice, it has a relatively small capital base. Its $200 million in capital is dwarfed by Merrill Lynch & Co.'s $6.9 billion and Goldman, Sachs & Co.'s $5.25 billion.
The deal is a blow to ING, which had tried to expand its influence in the United States by purchasing the rest of Dillon Read.