GE Unit to Pay $600 Million for 80% of Kidder, Peabody

NEW YORK — General Electric’s GE Financial Services unit will buy 80% of the investment house of Kidder, Peabody & Co. in an all-cash deal said by sources to be worth $600 million, the two companies formally announced Friday.

The agreement, reached Thursday evening, capped 11 days of negotiation and will give 121-year-old Kidder the capital that it will need in the coming battle among ever-larger financial conglomerates, company officials asserted at a morning press conference here. It will also advance GE’s goal of broadening its participation in financial services.

The deal--expected to close in a month, after regulatory approval--leaves the remaining 20% of the stock in the hands of Kidder’s 610 employee shareholders.

GE Approached Kidder in ’83

Officials disclosed that GE approached Kidder about a combination in mid-1983 but was turned down because Kidder officials thought that their firm could continue to prosper without financial assistance from the cash-rich manufacturing and financial services concern.

In three years, however, “the world has changed, and it’s capital access that we need,” said Ralph DeNunzio, Kidder’s president and chief executive. He predicted that in the next decade, investment houses will compete internationally with huge Japanese concerns and banks as well as with other financial titans.

Kidder’s capital assets total about $464 million, and, when the deal is closed, GE will provide an additional $130 million and Kidder an additional $20 million, bringing the firm’s total capital assets to about $614 million. Of course, GE could presumably provide still more capital as it became needed by Kidder.

The capital infusion will immediately bump Kidder from 15th largest to 12th largest among Wall Street houses, a spokesman for the Securities Industry Assn. said. DeNunzio and Robert C. Wright, head of GE Financial Services, turned aside questions on how large they expect Kidder ultimately to become, saying that future capitalization will depend on the firm’s success in maintaining its rate of return.

DeNunzio set the deal in motion on April 14, when he called officials of GE, which is known to have been shopping around for a Wall Street house for years. DeNunzio was invited to dine with John F. Welch, GE’s chairman and chief executive, that night in the company’s Fairfield, Conn., base.

DeNunzio said the firm seriously considered a public offering of its shares. Kidder probably would have received a better price in a public offering than it has gotten from GE, particularly in view of current high demand for investment house shares, he acknowledged.

However, he added, over the years GE will provide access to more capital than could have been raised by going public.

‘Several’ Offers to Buy Stake

DeNunzio said Kidder had also weighed the option of selling a minority stake in the firm and had “several” offers from institutions to buy such a stake. He declined to disclose their names.

DeNunzio said that there will be no immediate change in management or organizational structure and that Kidder’s compensation structure will also remain untouched.

Although GE has not officially disclosed the price of the deal, Wright did not dispute the $600-million figure that has been widely publicized.