NEW YORK -- Goldman, Sachs & Co. partners voted overwhelmingly yesterday to sell shares to the public, converting the 130-year-old investment bank into a public company that can use stock to expand and compete with rivals.
Co-chairman Jon Corzine, who led the drive to go public, will resign his post after the share sale, the firm said. Corzine, 52, had stepped down as co-chief executive in January after Goldman Sachs pulled its initial public offering in September as financial stocks plunged, and the firm racked up bond-trading losses. Henry Paulson will be sole chairman.
After the IPO, Goldman Sachs is expected to be worth $24 billion, making it the No. 3 U.S. securities firm behind Morgan Stanley Dean Witter, which has a $56.5 billion market value, and Merrill Lynch & Co., valued at $30.7 billion. Goldman might have gotten more for its stock in the past, investors said, when it led other Wall Street banks in most business categories.
"Several years ago they would have been able to command a bigger premium," said Mark Sokel, who helps manage $1.2 billion for Colonial Asset Management. "They aren't hitting this IPO at a time when they are at their most dominant."
Goldman Sachs earned $1.1 billion in fees from underwriting last year, ranking it third behind Merrill and Morgan Stanley, according to Securities Data Co. In 1995, Goldman Sachs was first. The firm was the No. 3 stock underwriter last year, behind Morgan Stanley and Merrill.
The firm still leads in advising on mergers, a lucrative business because it requires no capital; almost all the millions in fees fall to the bottom line. It ranked first in that business last year and is in the top spot so far this year, according to Securities Data.
Still, Goldman Sachs is behind rivals in asset management, which provides steady fees that help pad earnings when market declines hurt trading and banking profit. Goldman Sachs has about $160 billion under management, compared with Merrill's $500 billion and Morgan Stanley's $376 billion.
Goldman Sachs' financial structure is part of the reason. Morgan Stanley and Merrill have expanded by acquiring companies with stock, something Goldman Sachs cannot do. A partnership has to pay cash, which limits what it can buy.
"We are taking this step to secure permanent capital to grow, to share ownership broadly among our employees now and through future compensation and to permit us to use publicly traded securities to finance strategic acquisitions," Corzine and Paulson said in a statement.
New York-based Goldman Sachs plans to raise between $2.5 billion and $3 billion from the stock sale, said people familiar with the firm. It will use most of the money to boost its $6.3 billion in equity capital and the rest to retire about $755 million in private debt held by institutions, they said.
Goldman Sachs said a registration statement for the offering is expected to be filed March 16, which could provide profit figures the private partnership has not made public in the past.
Goldman Sachs made more than $1 billion before taxes and payments to partners in its fiscal first quarter, as the firm profited from a market rally that boosted trading, underwriting and mergers during the three months that ended Feb. 28. That is an improvement from the fourth quarter, when the firm posted its worst results since 1994 because of bond trading losses.
The firm's share sale could value the stakes of a few senior partners at more than $100 million each. Going public will spread ownership more evenly among employees. Now, only the 221 partners have equity stakes.
Pub Date: 3/09/99