Never Mind

A billion-dollar back-out

American Express apparently leaped before it looked hard enough. Little more than a month after it had trumpeted an agreement to buy Investors Diversified Services, the main subsidiary of Alleghany Corp. and a major marketer of mutual funds and life insurance, American Express last week backed out of the deal The company was admitting, as Wai Street had been saying all along, that the price for IDS, some $1 billion in American Express stock or nearly three times Alleghany's book value, was too high American Express left open the possibility of a new agreement but only with "revised terms and conditions." Translation: Alleghany must slash its price.

American Express coveted IDS because of its 4,500-member sales force that doggedly peddles financial products, often door to door, to 1.3 million customers. Negotiations between American Express and Alleghany proceeded quietly for three months, but when an agreement drew near in July, word of it leaked out on Wall Street. As a result, Alleghany's stock started to shoot up, and the deal had to be concluded quickly. Only after the announcement of its proposed acquisition was American Express able to launch a complete study of IDS's operations.

What American Express learned stirred a round of second-guessing at the company's executive suites in New York City. Officials were concerned that it might be extremely expensive to adapt IDS's computer system to process the broad array of products that American Express sells, including financial-management accounts, traveler's checks and credit cards. In addition, American Express began to fear that some of its top managers would have to spend too much time integrating IDS operations into the parent company. All along, American Express was nervous about IDS's lackluster performance on the bottom line. Alleghany's earnings, which come mostly from IDS, were down 7.9% last year, to $62.8 million.

The fate of the deal is now in the hands of Fred M. Kirby II, the reclusive, aristocratic chairman of Alleghany, who inherited the helm from his late father in 1967. Though the company's headquarters are in New York City, Kirby operates out of his father's wood-paneled gold-carpeted office in a 175-year-old white clapboard house in Morristown, N J The family owns 43% of Alleghany stock, and Kirby once called IDS the "crown jewel of [our] business affairs. He may resist parting with that jewel at anything less than a royal price. This file is automatically generated by a robot program, so viewer discretion is required.