No. 3 - Old Wall Street Sells Out
Another day - another merger. On Thursday Wachovia (WB) which is the nation's fourth largest bank scooped up regional broker AG Edwards & Sons (AGE) for nearly $7 billion . Yes, that AG Edwards - the venerable 120-year old St. Louis-based brokerage house.
As the late John Houseman would say, “They make money the old fashion way - they earn it.” Well, not anymore. Now, they sell out for a 16% premium.
What's different about this deal from all the others we've seen in this bull run?
Pete Najarian says this deal makes him nervous. When an 120-year-old firm sells, Pete thinks it suggests this could be the top.
Jeff Macke adds this can’t be their first offer in 120 years – but it could be telling that they took this one.
Ronald Kruszewski, Chief Executive of Stifel Financial Corp (SF) knows a thing or two about running a regional brokerage. His company is now the largest independent broker West of the Mississippi and he joins the guys for the rest of this conversation.
Does this deal give you pause?
“I was certainly surprised… (but) this has been rumored for years,” says Kruszewski. “I think there’s a lot of people who believe that the business of helping people manage their wealth for the next decade is a great business to be in.. and today’s transaction, and the price at which it occurred, would certainly (suggest) from Wachovia’s perspective.. helping people manage their wealth is going to be a great business.
Did they pay too much?
“I think it was 3.2 times book… 20 times earnings,” adds Kruszewski. “That was in the high end of the valuation range for almost any brokerage firm. (However,) AG Edwards is at the top of the list so it deserves a premium valuation.”
Your stock jumped on speculation that you come into play?
“Our stock did appreciate nicely today. A lot of people (think) we’re next but I feel (otherwise). We have no desire to do that,” says Kruszewski. One of the reasons our stock appreciated, as a regional firm there are very few of us left. We will avoid what’s going to be created by this mass consolidation.”
You’ve grown by acquisitions – do these valuation give you pause in terms of going after someone else?
“We have paid nowhere near the multiples that this deal was done at.“
At 20 times earnings would you sell?
“No.” he answers. “This isn’t the first time the brokerage industry has gone through consolidation…. If most of those people (who sold in the 90’s) could do it over today they would not have sold…. We’ve been much better off staying independent than selling.”
After the interview Dylan Ratigan asks the guys what’s the trade?
Pete Najarian thinks Piper Jaffray (PJC), Jeffferies (JEF) and Knight (NITE) are all in play, now.
Eric Bolling likes Raymond James Financial (RJF).
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Trader disclosure: On May 31, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Bolling Owns (T), (ICE), (NMX), Natural Gas, Sugar, Coffee; Najarian Owns (BIDU),(OXPS),(AAPL),(CLF),(DNDN),(MOS); CNBC Is A Service Of NBC Universal And Dow Jones