Oy, the Paine: Why Rumors About a PaineWebber Buyout Won't Go Away

Someday, when I'm no longer employed by TheStreet.com, I'm pretty sure I can make a good living trading against PaineWebber (PWJ Quote) takeover rumors.

I'll sit in front of a computer terminal, my alerts set for the ol' PWJ ticker, and when I see it moving I'll begin selling out-of-the-money calls. Those calls, the ones speculators love to play takeovers with, will surely expire worthless. I will stay on the phone with a broker until my ear is as cauliflowered as Jerry Quarry's and I will be rich beyond Wade Cook's wildest dreams.

On Tuesday, our friends at JagNotes reported the following ditty:

PaineWebber (PWJ) 40 1/2. Rumor that Dresdner Bank will buy PWJ in the high 50s. Both companies were not available to respond.

This time the buyers didn't come running. The stock and volume jumped a little near the end of trading Tuesday, but the shares closed up just 7/16 to 40 7/8. Wednesday didn't find any momentum pushing the stock, either: Shares of the New York-based brokerage firm slipped 9/16 to end at 40 5/16.

But even this latest go-round isn't really Jag's fault. There is someone out there who wants PaineWebber to be bought and is good at spreading the word.

In the past three years, PaineWebber has become the proxy target for all securities-firm takeovers, much the same way Chase Manhattan (CMB Quote) has become the proxy buyer whenever a brokerage trades like it's in play.

In PaineWebber's case, it's been a game of Pick a Suitor, Any Suitor. You like Germans? Go for Dresdner Bank. Big banks make you happy? Well, there's always Chase. And hey, if you think a competitor is on the prowl, whisper Goldman Sachs (GS Quote). Hey, ya gotta be in it to win it.

There have been dozens of other PaineWebber headlines that would have lost you as much money as you wanted. Here's a history, starting with more recent instances:

• Painewebber Up On Takeover Talk
  Aug. 13, 1998
  New York Daily News
  Investors are betting that where there's smoke there's fire when it comes to the $10 billion pursuit of PaineWebber by Dresdner Bank of Germany.

  Editor's Note: We can't speak German, so don't worry about verifying this one.

• Dresdner Bank Eyes PaineWebber
  Aug. 12, 1998
  The Financial Post

• PaineWebber Shares Rise Amid Rumors of Interest From German Banks
  July 31, 1998
  Dow Jones Online News
  NEW YORK -(Dow Jones)- Shares of PaineWebber Inc. rose Friday amid vague speculation that the brokerage firm could be the target of one or more German financial companies.

  Yeah, yeah. I like that "vague speculation" line. We'd hate to use the word "rumors" in there.

• PaineWebber Up --2: Chase Comments Said to Spur Speculation
  Feb. 18, 1999
  Dow Jones News Service

  NEW YORK (Dow Jones)--Shares of the brokerage PaineWebber Group Inc. (PWJ) were up 5.9% Thursday. Market participants attributed the gain to renewed takeover speculation resulting from comments Chase Manhattan Corp. officials made Tuesday afternoon.

  The Chase comments didn't mention PaineWebber, or any other company, specifically ...

  Specifics, schmecifics.

• PaineWebber Shares Jump on Talk of Possible Goldman Sachs Offer
  Oct. 3, 1997
  Dow Jones Online News
  NEW YORK -(Dow Jones)- Shares of PaineWebber Group Inc. were prominent gainers in Friday's volatile market session, hitting a 52-week high on renewed speculation the brokerage firm may be ripe for a takeover. This time, the Wall Street rumors focused on a possible buyout by privately held investment giant Goldman Sachs & Co.

• PaineWebber - Retail Brokers --3: PaineWebber Seen Attractive
  Sept. 29, 1997
  Dow Jones News Service
  "I've been saying for a while that it's only a matter of time before someone takes over PaineWebber," Fisher Investments' Kenneth Fisher said.

  Hey, if Ken Fisher says so, let's run with it.

The idea here is that PaineWebber's almost 7,000 brokers represent a great opportunity to reach the individual investor base in the U.S. So a bank such as Dresdner could use it to hatch an entry strategy to broaden its horizons. Chase could use it to leverage its retail banking franchise and as an outlet for any securities it underwrites. And Goldman? Well, Goldman needs PaineWebber, as my mother would say, like a hole in the head. But before Goldman went public, it would almost never comment on stuff like that, so reporters could dish it with relative impunity.

This time around, a PaineWebber spokesman says the company never comments on such rumors.

What the market often fails to appreciate is the long shadow cast by PaineWebber's big bossman Don Marron, all 6 feet 6 inches of him. Marron likes being chairman and CEO, a lot. Ask him and he'll tell you. I have and he has done just that.

Marron would like the firm to achieve greatness on his watch, making his retention a key to any deal.

The other factor is that employees hold 20% of the company, GE (GE Quote) owns 22% and Japanese insurance giant Yasuda has another 8%. Extracting those positions will take a hefty premium, and paying one for a full-service brokerage in the age of e-trading is a tough call.

So, the merry-go-round will continue for PaineWebber. Though it has to stop sometime. It could end with PaineWebber acquiring another firm, or maybe with a bear market that makes brokerages less attractive. Or maybe Marron decides to cash out and take a role in the Republican party, in which he's a prominent fund-raiser.

Either way, talk of the ever-elusive PaineWebber deal will surely resume sooner or later.

Hit of the Week: The smart-money Seidman-Skupp options team at Miller Tabak saw the buyouts of Hannaford (HRD Quote) and Nielsen Media (NMR Quote) coming before anyone else, and their clients got the benefit.