UBS takeover of PaineWebber – a match made in heaven

The UBS takeover of PaineWebber provides the Swiss bank with a key to unlock the US market Keystone

Analysts in Zurich, Frankfurt, London and New York have praised the UBS takeover of the US broker, PaineWebber, for more than SFr17 billion ($10.6 billion) as a strategically sound move.

The takeover is a bid by Switzerland’s largest bank to cement its position in the lucrative American market.

James Mitchell of the New York investment firm Putnam Lovell Securities said if UBS wants to be a global player it has to have a sizeable presence in the United States.

“The trend in financial services has been that those that have global reach have been able to weather the storms,” he said.

Both sides talked up the deal. UBS chief executive, Marcel Ospel, said the merger would “create a premier global investment services firm [by] combining UBS’s international reach and product range with PaineWebber’s…affluent and high net worth individuals”.

Ospel told a press conference in New York that the deal with PaineWebber was an ideal partnership. “The US is the largest market for financial services; it was inevitable that we would come here. The combination of Painewebber and UBS is a match made in heaven.”

His words were echoed by Donald B. Marron, chairman and CEO of PaineWebber. Analysts say he has long resisted takeover bids, but may have become more receptive to the idea now that he has now reached retirement age.

UBS saw its share price close down 7.6 per cent on Zurich’s SMI, but analysts said this was in part due to the need to issue 42.3 million new shares, worth around $6.2 billion, to help fund the deal.

UBS has done everything possible to ensure that the takeover proceeds as smoothly as possible. It has secured promises for PaineWebber’s two largest shareholders, General Electric and Yasuda Mutual Life, that they will support the bid, and it’s offering a premium on the broker’s shares.

In the buy-out, UBS is offering $73.50 per PaineWebber share – a 46 per cent premium above Tuesday’s closing share price.

The deal will be structured as a mixture of cash and shares. UBS shares will be offered to PaineWebber shareholders on the basis of 0.4954 UBS shares for each PaineWebber share held.

The cash payment will be funded, in part, by a $1.5 billion issue of preference shares in UBS.

UBS plans to incorporate PaineWebber into its asset management arm, UBS Warburg. The PaineWebber name will continue to be used, and will become the new brand for UBS’s private client group in the US.

This group will absorb the existing UBS Warburg Private Clients business unit and e-services initiative and will be responsible for all of the bank’s onshore private client services outside Switzerland.

swissinfo with agencies