Citicorp and Travelers Group Inc. on Monday announced a merger worth more than $70 billion, combining the No. 2 US bank with the fast-growing financial services company that last year bought Salomon Inc.
The deal is the latest in the financial services industry as banks and brokerages move into each others territory, and is far larger than the $37 billion that Worldcom Inc. is paying for MCI, the biggest corporate merger announced before Monday.
The move is a bold one for Citicorp, which had stayed on the sidelines as other banks merged or bought brokerages after Federal rules separating the two industries were relaxed. Wall Street welcomed the deal and both companies stocks soared. Citicorp jumped $26.125 to $169 while Travelers rose $7.31 to $69, both on the NYSE. The new company, to be called Citigroup, will be led by Citicorp chief John Reed and Travelers chief Sanford Weill. Under the deal, Citicorp shareholders will get 2.5 sharesand Travelers stockholders one share in the new company for each held.
Based on Fridays prices, the deal is worth more than $70 billion. This is a combination whose time has come, the companies said.
Citigroup will serve more than 100 million customers in 100 countries and expects to reap cost-savings from the merger and benefits from marketing both companies products. Citicorp owns Citibank, and is the largest issuer of credit cards worldwide. Travelers owns Salomon Smith Barney, Travelers life and property and casualty insurers, and Primerica, a financial services firm.While Depression-era rules separating banks and brokerages are being loosened, those laws still prohibit most banks fromentering the insurance business.
The companies are betting on a change. Citicorp and Travelers Group expect that current laws restricting bank holding companies from participating in insurance ... will change in the foreseeable future, they said in the statement.
The new company will be a giant by almost any measure. It will have $698 billion in assets and a market value of $135 billion, both the biggest in the financial services industry, it said.
It will be second in earnings at $7.5 billion vs. $8.3 billion for ING, the financial services giant in the Netherlands that bought Barings after the British bank failed.
The formation of the new company will occur through a merger of Citicorp into Travelers, which will apply to the Federal Reserve to become a bank holding company.
The deal is meant to be tax-free to shareholders.
