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A. Brown to merge in $1.7 billion deal Old Baltimore firm, Bankers Trust are called 'superb fit'

Alex. Brown Inc., the nation's oldest investment house whose roots in Baltimore date back almost 190 years, has agreed to merge with Bankers Trust New York Corp. in a deal valued at $1.7 billion, the companies confirmed last night.

The announcement, which was to be made this morning in New York, was pushed up after The Sun and the Wall Street Journal got wind of the deal.

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Top executives of Alex. Brown were in their offices throughout the day yesterday, negotiating and attending to last-minute concerns. They included A. B. "Buzzy" Krongard, chairman and chief executive officer, and Mayo A. Shattuck III, the firm's president and chief operating officer.

Late last night, Krongard left Baltimore for New York, to sign the definitive agreement to merge.

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"This merger is a superb fit that significantly enhances the combined firms' ability to provide our clients with a full range of superior services around the world," said Frank Newman, chairman of the board and CEO of Bankers Trust.

"Alex. Brown is one of the most successful and respected investment banking firms in the country. With this merger, we gain some of the best and brightest people in this business," he said.

The merger is expected to result in annual savings of about $80 million through the elimination of redundant operations, the companies said.

The agreement could involve some layoffs of Alex. Brown's 2,700 employees, but Krongard said they would be minor.

"The impact of ths merger is not accomplished by rifs [reductions in force]. There is not a lot of duplication. This is a globbing together, not a sculpting," he said.

The boards of directors of both companies have approved the deal. Under the terms of the agreement, Alex. Brown shares will be exchanged for 0.83 shares of Bankers Trust stock, worth about $68. Based upon the closing prices of both firms on Friday, the merger has a value of approximately $1.7 billion.

At the completion of the merger, expected before the end of the year, Krongard will become vice chairman of the board of Bankers Trust. Shattuck also will be named a vice chairman. Both will continue to work from Baltimore.

Alex. Brown shareholders will own about 21 percent of Bankers Trust, the country's seventh-largest banking company with $120 billion in assets.

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The merger is subject to approval by shareholders of both companies and the Federal Reserve, which could take four months.

The merged company would have almost 18,000 employees, $123 billion in assets and operations in more than 50 countries.

Alex. Brown, with assets of $2.5 billion, is a strong, regional brokerage house that specializes in taking public some of the nation's fastest-growing technology, health care and communications firms. Last year, it ranked as the largest underwriter of initial public offerings in terms of number of transactions.

Bankers Trust, on the other hand, has little in the way of an equities operation, but specializes in junk-bond financing and complex lending for some of the world's biggest companies.

Krongard said he believes the two companies are a perfect fit. "If you look at Bankers Trust, they have everything we didn't have, and we have everything they didn't have." He said it would have been too costly and taken the company too long to build businesses that Bankers Trust specializes in.

The merger will make Alex. Brown "a bulge bracket player overnight. We can compete with anyone to finance anything in the world," he said.

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"It is an excellent move for Bankers Trust," said George M. Salem, a banking analyst with New York-based Gerard Klauer Mattison, who was reached at his home last night. "It fills in the biggest void in their company. They have been evolving into an investment bank and securities firm for almost 20 years, and equities is their weakest link in that whole evolution."

A few years ago, Bankers Trust was sanctioned by the government for misleading clients about the risks of transactions involving derivatives.

Newman became Bankers Trust's chairman in January 1996. Since then, he has settled the lawsuits related to the derivatives problems, and last year he engineered the purchase of Wolfensohn & Co., a merger advisory firm.

Merger rumors

Rumors about a possible merger began circulating on Wall Street last week, sending Alex. Brown's stock soaring $11.75, or 28 percent, to $53.13, on Thursday and Friday.

That prompted the New York Stock Exchange to request on Friday that Alex. Brown issue a statement "indicating whether there are any corporate developments which may explain the unusual market activity." The company would say only: "Its policy is not to comment on unusual market activity."

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Bank acquisitions of brokerage firms are expected to increase because the Federal Reserve has changed regulations allowing banks to gain a greater percentage of their profits from securities trading that is mostly dominated by Wall Street firms.

Mergers and acquisitions in the financial services industry are also expected to pick up as securities firms seek ways to become more profitable.

Banks and insurance companies are racing to acquire brokerage firms to win over customers with more products and services.

"This definitely will set off a tidal wave of further activity," Salem, the analyst, said. "Brokers are in demand."

In February, Morgan Stanley Group Inc. and Dean Witter, Discover & Co. said they would merge to create the country's largest asset management company with a market capitalization $23 billion and $270 billion in assets under management.

The Alex. Brown-Bankers Trust transaction sends a clear message that any firm is fair game, including Baltimore's Legg Mason Inc. and T. Rowe Price Associates Inc. Both firms have been the subjects of takeover rumors in recent months.

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Roots of Alex. Brown

Alex. Brown's origins date to 1808, when Alexander Brown, who had moved from Belfast, Ireland, to Baltimore, formed with a group of businessmen the Baltimore Water Co., raising $250,000 in capital and buying stock for themselves and other investors. Soon after, the name of the company was changed to Alex. Brown & Sons.

Throughout its history, Alex. Brown has been involved in deals that influenced the development of the country.

As Baltimore was being edged out as a commercial center by New York and Philadelphia, the Brown family helped form the Baltimore & Ohio railroad in 1827. In 1830, the locomotive "Tom Thumb" raced a stallion on tracks outside Baltimore. The horse won when the engine malfunctioned.

The firm's role in American history only grew larger. After the Civil War, the firm led the way in the rebuilding of the South by shipping goods to ruined cities. And when Baltimore was destroyed by fire in 1904, the company played a crucial role in its reconstruction.

B. Howell Griswold took over Alex. Brown in 1923 and married the daughter of Alexander Brown, the great grandson of the founder. Benjamin H. Griswold IV is chairman emeritus of Alex. Brown today.

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Alex. Brown's accomplishments include selling $220 million in bonds in 1968 to build a parallel bridge over the Chesapeake Bay and another over the Patapsco River in Baltimore. More recently, the firm has been the lead manager in the initial public offerings of Microsoft Corp., Starbucks Coffee Co., Outback Steakhouse Inc. and software maker Oracle Systems Corp.

Alex. Brown through the years

1808 -- Birth in trade: America's oldest investment banking firm got its start in Baltimore in 1808. Alexander Brown, the firm's founder, was born south of Belfast, Ireland, in 1764. He transplanted his family's successful linen business and family to the booming port of Baltimore in 1800. Eight years later, he struck his first investment banking deal, helping finance the city's first water supply. Soon after, his sons joined the firm, giving it the name it has carried until the present.

1820s-1830s -- Riding the rails: With their own fleet of ships, Alexander Brown and sons dominated trade between Baltimore and Liverpool, England, in the 1820s. But the firm also helped launch the era of "the Iron Horse," organizing financing for the Baltimore & Ohio, the nation's first commercial rail carrier. In 1830, when the tiny steam locomotive "Tom Thumb" won a race with a big gray stallion outside Baltimore, Alexander Brown was along for the ride.

1834-1860s -- A family tradition: The firm's founder died in 1834 after helping stem a financial panic. His son George took over the firm, and with the help of his brothers built a thriving banking business. George's son, George S. Brown, took over the firm in 1860 and also became mayor of Baltimore. But the Civil War intervened, forcing the firm to suspend operations as president Brown was arrested and imprisoned for suspected Southern sympathies.

1860s-1900s -- Up from the ashes: A revived Alex. Brown & Sons helped supply goods and capital for rebuilding the decimated South after the Civil War. In 1900, the firm laid the cornerstone for its headquarters, a domed, copper-windowed brick edifice that survived the fire that destroyed most of downtown Baltimore in February 1904.

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1900s-1930s -- Surviving the crash: The firm also weathered the stock market crash of 1929 and the Great Depression, in large part because of the firm's traditional caution. The company refocused entirely on investments during the Depression and helped finance some of the region's most important transportation projects, including bridge and tunnel construction.

1940s to present -- Cautious growth: The firm expanded into additional cities and added services during the 1940s, yet retained a conservative approach. In the mid-1970s, the firm decided to specialize in a handful of promising industries, including health care, media and technology. Alex. Brown & Sons incorporated and went public in 1986. It has been headed since 1991 by A. B. Krongard, chief executive officer and chairman, and by Mayo A. Shattuck III, president and chief operating officer. The company has 28 offices in the United States and two others in London and Geneva.

Pub Date: 4/07/97


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