This day, the chairman’s sign is blinking HAPPY, and small wonder. He’s just clinched a big deal, adding yet another Boardwalk to Weillopoly – otherwise known as Travelers Group, the multinational conglomerate Weill has assembled over the past decade. The latest prize: venerable Salomon Inc., one of the world’s best and biggest investment banks. The $9 billion acquisition is the second largest in Wall Street history. It creates, overnight, a new global financial powerhouse, dwarfing ubiquitous Merrill Lynch & Co. and rivaling the mightiest American, Japanese and European institutions–American Express, Nomura, Deutsche Bank. Perhaps more important, it’s destined to be imitated–igniting yet another round of consolidation among the world’s banks, insurance companies and brokerage houses.
This is sweet revenge, indeed. For the man who’s rocking what wags now call “Weill Street” was not so long ago a has-been, a guy who’d risen to the top in classic rags-to-riches style–only to be shoved to the fringes. Born in 1988, the son of Polish immigrants, he worked his way through Cornell University and began his Wall Street career as a messenger for Bear Stearns. A few years later, he with several friends started his own firm. With pluck and luck and no end of his characteristic gusto–Weill cherishes a brass plaque naming him a PROFESSIONAL BUSYBODY–he began buying up small or troubled securities houses, eventually assembling the sprawling financial-services network known as Shearson Loeb Rhoades. Then, in 1981, Weill sold the whole shebang to American Express for $930 million, expecting to be named chief executive in a few years. Instead, he was sidelined. Disgusted with playing the role of what he called “Deputy Dog,” he finally quit.
So began Weill’s dark years on The Street. For a time he seemed to flounder. He worked seemingly aimlessly, and brooded. He made a low-ball bid to take control of Bank of America. Insiders derided it as “the 22-cent job application,” the going rate for a stamp. Weill regained his footing only when he reapplied the formula used to build his first empire: pursue financially troubled companies, drive a hard bargain, slash costs and prod the new troops to do their business better. In 1986 he bought the faltering and little-known consumer-credit division of Control Data, and turned it around. Two years later he acquired a stumbling giant, Primerica, which in turn owned Smith Barney, a securities firm that had been laid low by the 1987 stock-market crash. Then in rapid succession he took over Travelers, bought back (in a delicious irony) the Shearson brokerage group from American Express and picked up the property and casualty business of Aetna Life & Casualty–all multibillion-dollar deals.
The acquisition of Salomon caps this comeback. Weill describes it as perhaps the easiest deal he’s ever done. “It went very fast,” he told NEWSWEEK in an ebullient interview atop the Travelers building in the artsy Tribeca district of Manhattan. Talks began on Aug. 14, when he met Salomon’s Deryck Maughan for dinner at the Four Seasons restaurant in New York. Weill then called Warren Buffett from the Adirondack Mountains upstate. The Omaha, Neb., financier owned the single biggest stake in Salomon, and without him no deal could be done. “Your timing is perfect,” Weill says Buffett told him. “I hope you get it.” Conversations culminated in a full-day meeting on Sept. 7, when Salomon’s team agreed to a rough price. Leaving the meeting, Weill told his second in command, Smith Barney chairman James Dimon, “We could get this done.” “That,” Weill says, “was when I started getting scared.”
Scared or not, Weill appears to have gotten a bargain. Travelers paid roughly 1.7 times book value for Salomon, which many analysts consider to be a relatively low price. “We sold Shearson to American Express for three times book,” Weill says, and more recent deals on The Street have been even higher. Weill seems less pleased with his price than with the company’s prospects. “This is about growth,” he says over and over. His goal, as he describes it, is to build one of the world’s premier financial-services firms. Acquiring Salomon is a big step. The deal joins one of the nation’s largest equities houses, with 27,000 employees, with the country’s leading bond dealer. With a market capitalization of $55 billion, Travelers as a whole is far larger than its chief rivals–Merrill Lynch, Morgan Stanley/Dean Witter and Goldman Sachs. It wields extraordinary investment-banking power–ranking first in U.S. municipal underwritings, second in all U.S. and international debt offerings and fourth in global equities underwriting. Salomon Smith Barney Holdings will boast one of the most highly rated teams of industry analysts on Wall Street. Weill is especially enthusiastic about new overseas markets. “Everyone is copying the capitalist system, whether in Eastern Europe, China or Latin America,” he says. “The global market could become as big as the whole U.S. capital market. And we weren’t there.” With Salomon, he adds, “we are.” Now, he feels he can steal a march on the Japanese and Europeans, whom he describes as “not offering a lot of competition.”
Such talk reminds some people of the days before The Fall, when Weill spoke equally optimistically about his sale to American Express. Many chief executives have tried to meld banks and brokerage houses in recent years. Few have succeeded. One reason is that the strategy of building financial “supermarkets” that offer one-stop shopping hasn’t paid off. (And many analysts assume that’s what Weill is aiming to do.) Sears, among others, tried and failed in the ’80s with a strategy that industry types widely derided as “stocks and socks.” Another problem is integrating huge companies, especially ones whose cultures differ as much as Smith Barney’s and Salomon’s. The former is a nationwide retail operation catering to individual investors and small businesses, the latter an institutional bond dealer that makes a huge share of its profits from the highly volatile business of buying and selling securities for its own account. It’s famous for reaping huge profits in good years–and infamous for rewarding its traders well.
Some analysts suggests that could crimp Weill’s buy low-cut deep style. When Buffett tried cutting pay at Salomon, which he ran for a time in 1991, many of the firm’s best traders left for the competition–prompting Buffett to quickly retreat. Would Weill fare any better, analysts wonder? If not, where will the cost reductions that he promises come from? What’s to create the efficiencies among Travelers’ different groups–some call it “synergy”–that will make the parent company more than just a big holding tank?
Weill wasn’t offering any answers last week. He confirms there will be layoffs and cuts, but shrugs off talk of the difficulty assimilating his new assets. “I’ve got a lot of experience handling diversity,” he says. And he has no intention of building a so-called “financial supermarket,” noting that supermarkets have to live with low profit margins–something he clearly hates to do. He’s a tiger about shareholder return. Travelers’ stock price has risen 14-fold since 1986, he boasts; senior officers swear what he calls a “blood oath” not to sell their stock while working at the company.
With this, Weill suddenly gets up and flicks the switch on his neon sign back and forth. Is he signifying his happiness with that gain, or his unhappiness at talk that’s dragging on too long? Either way, he’s impatient to get on with his job.
Sandy Weill’s winning formula is simple: target ailing companies, drive a hard bargain, slash costs and then motivate, motivate, motivate. He has built two empires by finding paydirt in other people’s castoffs. In recent years he’s been buying only the bluest of blue-chip companies, like Salomon. Wall Street can only guess at what he’ll do next. Hint: it will be a big deal.
1960 Weill – then a 27-year-old Brooklyn, N.Y.-born stock broker and former messenger at Bear Stearns–and friends found Carter, Berlind & Weill. Under his leadership, the firm would become the Wall Street powerhouse of Shearson Loeb Rhoades by the late 1970s.
1981 Weill sells Shearson to American Express for $950 million. He serves as the latter’s president from 1983 to 1985, then quits after playing second fiddle to CEO James Robinson.
1686 Weill acquires Control Data’s faltering consumer-credit division. He becomes CEO and begins turning the business around.
1988 Buys Primerica Corp.– Smith Barney’s parent company–for $1.5 billion. Later that year he purchases Drexel Burnham Lambert’s retail brokerage outlets.
1992 Acquires a 27 percent stake in Travelers Insurance for $728 million
1993 Reacquires Shearson from American Express for $1.2 billion. Later buys the remainder of Travelers for $$.4 billion. The new company adopts the name Travelers Group.
1995 Weill sells Travelers health-insurance operation for $879 million
1996 Acquires Aetna’s property-casualty-insurance division for $4.2 billion
1997 Buys Salomon Inc. for $9 billion
