General Electric Emerges as a Financial Power

Article excerpt

General Electric Emerges as a Financial Power

General Electric Co., through its acquisition of Kidder, Peabody & Co., emerges as a financial power offering a sophisticated mix of financial services that will make it the envy of the nation's biggest commercial banks.

Shortly after the deal was sewed up last week, weary executives from the two companies went to great lengths to convince the world that their merger was a match made in financial services heaven. The combination, they said, placed General Electric Financial Services, a GE subsidiary, squarely among the nation's top 10 diversified financial firms.

At a press conference Friday in New York, Robert C. Wright, chief executive officer of GE Financial Services, and Ralph D. DeNunzio, Kidder Peabody chief executive, explained how the two firms were well matched to build on each other's strengths.

What emerged from their presentation was a picture of an institution that is bound to be the envy of big wholesale banks like Morgan Guaranty Trust Co. and Bankers Trust Co. With Kidder Peabody, GE will find itself with the power to underwrite and market corporate securities, finance and advise participants in leveraged buyouts, fund major commercial loans, serve customers in the worldwide reinsurance market, and more.

The picture -- even without federally insured deposit-taking capabilities -- carries a striking resemblance to the merchant banking model that so many big commercial banks seek to emulate.

"This is a very powerful business combination," said a weary Mr. Wright on Friday, just half a day after the two companies announced that they had agreed to merge.

The deal, set to close in about a month, calls for General Electric to pay a reported $600 million in cash for an 80% share in Kidder Peabody, one of Wall Street's oldest privately held securities firms. The investment house will retain its existing partnership and compensation structure and Kidder's 500 shareholders -- all insiders -- will keep a 20% interest in the company.

Kidder Peabody earned $47 million in fiscal 1985 ending last November and earned $43 million in the first four months of fiscal 1986, the company said.

With an average return on equity of more than 20% in the 1980s, the brokerage house was regularly courted by outside suitors. When asked about unsolicited offers from both public and private firms, Mr. DeNunzio said "we discouraged them."

But the deep pockets and all-American name of GE -- a long-time admirer of Kidder -- was too good a combination to turn down. Once Kidder's board opted against a public offering of its shares and voted unanimously in favor of accepting GE's offer, things moved swiftly.

Talks Began April 14

Informal negotiations between Mr. DeNunzio and Mr. Wright began over dinner on April 14 at GE's Connecticut headquarters. …