Primerica-AMEX Deal May Presage Restructuring Wave

Article excerpt

THE sale of the Shearson Lehman Brothers retail brokerage division - a unit of American Express Company - to Primerica Corporation for more than $1 billion is expected to have broad repercussions for the US financial services industry. Competition between brokerage firms will be sharply intensified; American Express will be able to focus once again on its troubled but primary credit card business; and Primerica will be able to directly challenge industry leader Merrill Lynch & Co. for dominance within the retail brokerage sector.

The sale, which has been rated well by Standard & Poor's Corporation and Moody's Investors Service Inc., may serve as a model for other selloffs or mergers of brokerage houses, experts say.

The push for mergers and structural reorganization that has marked much of corporate America lately has increasingly been felt within the financial services area. A number of major banks, including such insitutions as Chemical Bank and Manufacturers Hanover, have merged. Many analysts say the retail brokerage industry could join the march toward consolidation given stepped up competition for investor dollars from banks and savings and loan associations, mutual fund companies, and other financial-service firms.

Brokerage houses that have been the subject of speculation as potential takeover candidates include Kidder Peabody & Co., owned by General Electric Company, and Prudential Securities Inc., a division of Prudential Insurance.

Primerica's acquisition of Shearson is the largest purchase of a brokerage house undertaken in the United States. "I would anticipate a period of digestion {by Primerica}, with clearer controls of costs, the elimination of some overlapping staff and a big push on Merrill Lynch & Co.," says Lewis Altfest, president of L. J. Altfest & Co., an investment advisory firm. Merrill Lynch is the country's largest retail brokerage firm. "In a way this is going to be like the battle between Coca Cola and Pepsi," says Mr. Altfest. Primerica and Merrill Lynch "will do just fine. But the problem is going to be for the smaller brokerage houses, or the {large} firms that can't control costs."

So far, investors have given a thumbs up. Both companies saw a boost in the price of their stock, especially for Primerica. …