E. F. Hutton Ends Merger Talks With Shearson : Brokerage’s Chairman Gives Up CEO Title; Sale of Insurance Unit Considered

E. F. Hutton Group said over the weekend that it has held talks with rival brokerage Shearson Lehman Bros. Inc., but Shearson did not make a formal offer to buy Hutton and the talks have ended. A merger would have created a network of investment brokers nearly as large as Merrill Lynch’s.

On Sunday, Hutton also announced that Robert Fomon has given up the title of chief executive to President Robert Rittereiser, a former top-level executive at Merrill Lynch who was hired 16 months ago in the wake of Hutton’s guilty plea to a multimillion-dollar check-kiting scheme.

Fomon, 62, remains as Hutton’s chairman of the board and chairman of the executive committee. Rittereiser, 48, keeps his previous titles of president and chief operating officer.

Beyond citing Rittereiser’s “outstanding ability,� Fomon said the realignment in the executive ranks would “insure continuity for E. F. Hutton’s shareholders, clients and, of course, our most valuable asset, our employees.�

The Rittereiser appointment and Hutton’s accompanying statement appeared to be designed to address possible restlessness within the firm because of current takeover speculation.

The board of directors said in the Sunday statement that it “reaffirmed its support of E. F. Hutton’s management team and its plans for the future.�

Apparently signaling that the brokerage prefers not to be acquired, the board said the firm “will pursue an independent strategy� and intends to “reach its goal of becoming the leading investment services firm in the industry.�

Hutton also announced two additional developments on Sunday:

- It will explore the sale of E. F. Hutton Insurance Group, a subsidiary. The board, however, said Hutton “is committed to maintaining its industry leadership role in the sale and distribution of insurance products.�

- Sadao Yasuda, 53, general manager of Tokyo-based Sumitomo Life Insurance Co., was elected a Hutton director. Fomon said Yasuda’s background would be helpful, “given the growing international business of Hutton.�

The flurry of activity at Hutton follows speculation that Shearson was interested in acquiring the brokerage. But before Saturday, Hutton never admitted that it was holding talks with Shearson, which is owned by American Express.

Beyond saying in a statement that Shearson made no formal offer and that no further talks were planned, Hutton declined to comment.

Shearson officials were unavailable for comment.

Wall Street on Friday apparently sensed that a prospective takeover bid was fizzling. Hutton’s stock, which had run up on takeover speculation, fell $4.25 a share to close at $48.625 in New York Stock Exchange composite trading. About 1.54 million shares traded hands.

Hutton has been considered a takeover target because its total capital, $1.14 billion as of last Jan. 1, is considered low for a major brokerage.

Analysts said Shearson wanted to acquire Hutton because its retail network, one of the largest in the industry, would enhance Shearson’s ability to distribute securities. By combining offices and eliminating low-producing brokers, they said, the companies could forge a more efficient operation.

A Shearson-Hutton combination would create a securities firm with about 12,100 stock brokers. Merrill Lynch, with about 12,400, has the largest sales force. Hutton has about 6,400 brokers and Shearson about 5,700.

Hutton’s board of directors held a day-long meeting Friday, and it was assumed that the board was considering an offer from Shearson. Rumors at various times had Shearson offering between $52 and $56 a share for Hutton.

There also has been speculation that Metropolitan Life Insurance Co. is also an interested suitor. The company has declined to comment. Equitable Life Assurance Co. also has been mentioned as a possible acquirer.

However, some Hutton insiders say it would be logical if the firm were to look for a partner outside of the brokerage industry. They note that if there is a Shearson-Hutton merger, the resulting firm would have many overlapping facilities.