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JACK WELCH MAY BE SEEING GREEN
Is American Express Co. about to become part of the takeover fray? A senior AmEx employee told BUSINESS WEEK that General Electric Capital Services Co., GE's financial-services arm, has approached AmEx about buying the charge-card company. And an investment banker also says that GE has made an overture to AmEx. Neither company would comment.
A deal between the two would be one of the biggest ever. AmEx, now trading at $28, has a market value of $14 billion. But it likely would fetch $40 per share, says Mark Boyar, who runs a New York money management firm that researches takeover candidates--putting its total price tag at $20 billion. Analysts figure that GE, with a market value of $89.6 billion, is sitting on $5 billion in cash, though Boyar thinks it would opt for a stock swap. "I've always said [GE chief Jack] Welch wants to do one more major takeover," says Boyar. "The ultimate would be American Express."
SECOND COURTING. To many on Wall Street, such a combination makes sense. GE's aborted bid for Kemper Corp. earlier this year signaled its interest in entering the mutual-fund business. And AmEx owns IDS Financial Services Inc., which manages $103 billion in funds. GE, moreover, has lots of experience in the card business: One of its divisions processes credit cards for the likes of R.H. Macy & Co. and Exxon Corp.
The timing also may be right. GE and AmEx discussed a merger four years ago, say former AmEx insiders, but GE was turned off by AmEx's Shearson Lehman Brothers Inc. and its enormous liabilities. AmEx, however, sold Shearson last year and spun off its Lehman Brothers unit earlier this year.
AmEx could use a strong partner. In search of a turnaround in its ailing card business, it is having to take extreme measures. As part of a major cost-cutting effort, employees expect it to cut staff by 10% this fall. This fall, too, AmEx will announce a big plunge into the revolving credit-card business, a spokesman confirms--a major departure for a company known for its charge card. It plans to launch a dozen credit cards aimed at niche markets tailored to different customers' needs.
Still, GE might not win AmEx without a fight. Analysts cite other possible bidders, from General Motors to Citicorp. With AmEx stock a longtime laggard, a serious bidder would be hard to resist.Leah Nathans Spiro in New York, with Tim Smart in Connecticut