Swiss banking giant
planned acquisition of New York securities firm
could become the most successful, complementary trans-Atlantic merger ever. Or it may become the topic of a
seminar on culture clashes.
While this $10.8 billion acquisition of PaineWebber will give the firm's chairman, Donald Marron, an $85 million payday, the path to the promised land won't be an easy one, especially with that hefty premium hanging over it. UBS agreed to pay $73.50 in cash and stock. (
wrote earlier Wednesday about the deal.)
PaineWebber's two top executives, Marron and President Joe Grano, are many things. They are bootstrappers and admirable self-made men. Grano's even a decorated Vietnam War hero. They are not, however, Swiss bankers. They don't look like Swiss bankers; they don't act like Swiss bankers. (They pronounce the "W" in PaineWebber.) They are brokers, plain and simple, and their styles may need to be adjusted to deal with their new, more buttoned-down bosses.
That didn't stop them from carving out a nice deal and keeping their positions. They agreed to be acquired by a huge European bank that wants and needs their understanding of the U.S. market. UBS also likes the idea of having a homegrown sales force of more than 7,600 brokers to leverage its already prodigious trading and research and growing investment banking operation to pump product into PaineWebber's branches.
Marron will be the chairman of
UBS North America
and Grano will be the CEO of
UBS Warburg Private Clients Worldwide
The Perfect Deal
After several meetings with UBS Chairman Marcel Ospel, Marron told an audience at New York's
hotel Wednesday morning, "The reasons for doing this deal became more clear and compelling. It was the right organization, the right reason, and after a while, the right price," he said.
Amen, say the PaineWebber shareholders who have been waiting for a deal for what seems like the better part of the 1990s. "PaineWebber needed to do something, to join up with someone," says Bob Olstein, manager of the
Olstein Financial Alert
fund, which owns PaineWebber shares.
The knock on UBS is that it paid a 46% premium for stock that has risen just 10% over the past 12 months (before Wednesday), compared with
Morgan Stanley Dean Witter's
86% appreciation and
That price tag, Olstein says, shouldn't be an issue. "I don't know how you can replace that distribution organization PaineWebber has. You can't build it," he says. "And you can't put a value on it. In today's Wall Street, distribution is king."
Keeping that system in place was obviously worth plenty to UBS. About $875 million will be "set aside for key PaineWebber professionals" over the next three years.
After the formal festivities ended, Grano said "at least half" of that amount will be converted to stock and awarded to brokers. To Grano, retention is an ugly word; he said he prefers "recognition" as the rationale for giving brokers an extra little kiss on the deal.
PaineWebber already has an established tradition of employee stock ownership. In 1999, more than 20% of its shares were held by employees, a factor that kept it somewhat insulated from a hostile move. Retention hasn't been a problem for PaineWebber.
Traditionally, when a major brokerage firm gets acquired or runs into problems, competitors carpet-bomb its branches with recruiting calls. And because PaineWebber is one of the most-aggressive recruiters on the Street, that history may make rivals all the more ambitious in pursuing its brokers. But the landscape has changed so dramatically that it may not be a problem this time.
"I think PaineWebber brokers will be happy about the deal. This is the most exciting thing that's ever happened to them," says Rick Peterson, a Houston-based broker recruiter. "I don't think anyone is going to put on the full-court press."
Another factor is that there are fewer firms to actually recruit PaineWebber brokers because of the rampant consolidation in the securities business during the past five years.
There won't be any huge layoffs because there is so little overlap across the business lines. Together, their research department will number 600 equity analysts and cover more than 90% of stocks in both the
Because PaineWebber's investment banking isn't a power -- the most revisited criticism of Marron's leadership -- UBS Warburg bankers won't be knocking heads with any of their new cousins.
And even Marron and Ospel took time to read aloud each other's public statements on the deal, then split the reading of Jack Welch's congratulatory statement, Ospel beginning and Marron finishing. (Welch's
owns about 22% of PaineWebber.
wrote earlier Wednesday about GE's investment.)
It was a nice gesture, but forging two such disparate companies will take more effort than sharing a podium.