Travelers Group To Buy Salomon

By Amy S. Friedman

Travelers Group has taken another step closer to its goal of becoming an integrated global provider of financial services with its agreement last week to acquire Salomon, Inc., the investment banking firm.

The acquisition, a $9 billion all-stock swap, will create one of the largest securities and investment banking firms in the world, according to analysts who follow the company-a $250 billion in assets entity, with a large inventory of both U.S. and foreign government securities.

Travelers will buy Salomon by issuing 1.13 shares of its stock for each share of Salomon. At mid-year, Salomon's book value stood at $4.6 billion. Travelers will then merge Salomon with its wire house subsidiary, Smith Barney Holdings, to create Salomon Smith Barney Holdings, Inc.

The announcement of this purchase, the second largest financial services buy so far this year, came at the end of nearly a week of speculative frenzy, as rumors swirled about acquisition targets such as J.P. Morgan and Bankers Trust. So far, only Morgan Stanley's acquisition by Dean Witter for $10.8 billion in February outranks it in size.

Since Travelers Group chairman and CEO Sanford I. Weill purchased Travelers Ins. in 1993 and merged it with Primerica, the firm has been rapidly transforming itself into an integrated financial services company.

Until this purchase, securities comprised about one-third of its business, the property/casualty business purchased from Aetna in late 1995 for $3.8 billion a second third, and much of the rest made up of life insurance sales, according to Alan Murray, vice president and senior credit officer of Moody's Insurance Group.

"This is going to shift the balance of earnings, but we don't expect it to alter Travelers' commitment to insurance products," he said. "They make the firm a lot of money-we're expecting them to earn $1.7 billion in 1997, and about $2 billion in 1998, from their life and p/c product lines."

The acquisition has many "dovetails," Travelers spokesman Gordon Andrew told National Underwriter. "Smith Barney is a retail firm with asset management, neither of which Salomon has. Salomon, on the other hand, has a strong international and institutional presence, which we did not have," he said.

On the securities side, Mr. Andrew said, "It catapults us into the top tier of the bulge-bracket firms," meaning that the combined firm now ranks in the top three, and in some cases, No. 1, in rankings of securities underwritings, municipal finance, research, and the like, he added.

On the insurance side, Mr. Andrew said the company anticipates far more cross-selling of Travelers insurance products by Smith Barney reps.

"Travelers has been working hard to utilize multiple distribution systems for its annuities," Mr. Murray said.

However, he added, he does not believe the acquisition will create additional opportunities on the life side.

Internationally, however, Salomon's credibility abroad will create a global awareness and credibility for Smith Barney retail securities and for Travelers' life, annuity and property-casualty insurance products, Mr. Andrews said, a point with which analysts concurred.

Being an international player is essential in today's financial services marketplace. Travelers is heading in that direction, and this purchase will push them further along that road, Thomas Upton, director of insurance ratings for Standard & Poor's, New York, told NU.

"Over the long term, I think the aspiration of the Travelers Group-to become a broad-based, dominant financial services player-will force them to expand their insurance sales efforts outside of the U.S.," he said.

And Travelers intends to expand its retail reach abroad, in securities and in life, annuity and p/c insurance, Mr. Andrew said. Since January, Travelers has had on board an executive specifically charged with the responsibility for increasing international distribution for the insurance products.

However, at this point, Mr. Murray said, "It's not a benefit that will be reaped immediately." Still, to distribute internationally, a company needs name recognition, and the acquisition of Salomon gives Travelers just that.

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