UBS to Buy PaineWebber for $10.8 Billion

In a move that would give Switzerland’s biggest bank access to millions of wealthy American investors, UBS AG said it will buy PaineWebber Group Inc. in a cash and stock deal valuing the U.S. broker at $10.8 billion.

The proposed deal extends the recent global consolidation that is reshaping the banking, insurance and securities industries.

The companies hope to complete the deal in November, pending shareholder and regulatory approval.

Donald B. Marron, chairman and chief executive of PaineWebber, had long resisted selling the company, but said in a statement today: “This is the right merger, with the right partner, at the right time.”

PaineWebber’s two largest shareholders, General Electric Co. and Yasuda Mutual Life, have agreed to vote for the deal. Together, they control about 30 percent of PaineWebber’s shares. UBS, created from the merger of Union Bank of Switzerland and Swiss Bank Corp. in 1998, manages more than $1 trillion in client assets and employs 49,000 people around the world.

Terms of the Deal

Under the transaction, PaineWebber shareholders can accept either 0.4954 UBS shares per PaineWebber share or $73.50 in cash, but UBS said it would ultimately pay half in cash, half in shares for the U.S. broker.

Some U.S. investors are seen likely to favor a share-for-share exchange, which is not taxable as a cash offer would be.

UBS chief executive Marcel Ospel said UBS’ international reach and product range will mix well with PaineWebber’s leading position in the United States for affluent customers.

PaineWebber has 8,554 brokers in 385 offices and manages client assets of $452 billion. Its brokerage force is fourth in the United States behind Merrill Lynch, Morgan Stanley Dean Witter & Co. and Citigroup’s Salomon Smith Barney unit. PaineWebber reached an agreement in April to merge with Nashville, Tenn., brokerage firm J.C. Bradford & Co. for $620 million in cash.

UBS recently listed its shares on the New York Stock Exchange. It said at the time the listing would aid in U.S. acquisitions by allowing it to use own shares as a currency.

It said it would fund part of the cash offer by issuing $1.5 billion in UBS preference shares.

John Leonard, European bank analyst at Schroder Salomon Smith Barney, said that based on his firm’s calculations, the move made sense, and was in keeping “with the integrated global securities firm approach.”

PaineWebber a Takeover Target

UBS, based in Basel and Zurich, is one of the world’s largest managers of private and institutional money, but its strengths in private wealth management are centered in Europe.

For brokers like PaineWebber, which face increasing pressure from competition from e-services, the move also makes sense, analysts said.

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