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LAYOFFS LOOM AS SALOMON DEAL SHAKES UP WALL ST.

Another earthquake shook Wall Street Wednesday as the Travelers Group, the owner of the Smith Barney brokerage, announced it will acquire Salomon Inc., parent of Salomon Brothers, for $9.3 billion, creating the nation's third-biggest securities firm.

Less than eight months after Morgan Stanley agreed to merge with Dean Witter Discover, and after a flurry of smaller deals, Wall Street again finds its ranks thinned by a historic consolidation wave that seems to surge higher by the day.

Market observers expect roughly 2,000 employees to lose their jobs in the latest deal, with Smith Barney's fixed income unit and Salomon's equity group seen to be among the first victims of the deal.

While the two companies are not commenting about possible layoffs -- employees were said not to have been told about layoffs in meetings Wednesday -- Travelers said it would take up to a $500 million merger-related charge after the deal closes because of costs such as severance packages.

And whether Travelers will keep Salomon's highly volatile proprietary trading unit is a big question mark. These issues could make the integration of the two firms tough. Unlike Morgan Stanley and Dean Witter, which had few overlapping units, Smith Barney and Travelers have common groups such as bonds and stocks.

Indeed, Travelers has struggled mightily to build its investment bank, Smith Barney, so how that company will fare is unclear. The fact the new investment bank will be called Salomon Smith Barney -- despite Salomon being the company acquired -- is a signal there could be a lot of bloodletting at Smith Barney.

"Inevitably there will be a lot of layoffs, to make it work and get the savings," said Gerard Smith, a managing director at UBS Securities and a former Salomon director. "At a minimum there will be a billion dollars of savings, which is a third of Salomon Brothers' cost structure."

At least 2,000 to 3,000 layoffs could occur due to the merger, added Tony Russ, an analyst with Shelby Cullom Davis & Co.

"The strength of Salomon is its fixed income, so Salomon should clearly win the fixed income side of this business," he said. "And Smith Barney should win much of the equity side of the argument. After you get past that, there will be a lot of turf battles. I am very surprised, I still don't see the overall fit."

Not everyone agreed with the criticism that the two firms were a bad mix. James Schmidt, portfolio manager at John Hancock and a large Salomon shareholder, told CNBC Wednesday that he liked the fit between the two.

Travelers gets several areas it was weak in, like fixed income and international trading, he said. "They cover the landscape much better together than they do separately," he added.

The critical question for many observers is whether Travelers will sanction the huge trading swings common at Salomon Brothers, which derives roughly 70 percent of its income from trading.

"Smith Barney's control-orientated management style will likely conflict with Salomon's considerably looser style, which accepts occasionally large trading losses as part of the cost of doing business," said Standard & Poor's, which affirmed Smith Barney's ratings Wednesday.

"The tension resulting from these two distinct styles may be aggravated by the management structure of the new organization," S&P said.

Salomon Smith Barney will have two co-chief executives, Smith Barney's James Dimon and Salomon's Deryck Maughan.

Smith Barney has had its share of trouble trying to meld disparate cultures. Several years ago, in a bid to become a high-profile investment bank, Smith Barney hired Morgan Stanley's merger guru Robert Greenhill and his team of high-priced investment bankers.

Cultural clashes at Smith Barney, known more as a sleepy brokerage house, emerged instantly. After two years of conflict and few results Greenhill left the firm.

Now Smith Barney will get together with Salomon, known for its gunslinging, take-no-prisoners style immortalized in the book, "Liar's Poker."

But many Wall Street pros are hesitant to bet against Travelers' chief executive Sanford Weill, who has made his reputation with dozens of acquisitions to build Travelers into an international financial services powerhouse.

"Smith Barney is now approaching the Merrill Lynch paradigm" of being everywhere all the time, said UBS' Smith. "With a $55 billion market capitalization, which is twice as large as Morgan Stanley or Merrill Lynch, (Smith Barney) has fantastic muscle and broad reach."

Under the deal, Travelers will issue 1.13 shares of its stock for each share of Salomon stock for a total value of $9.3 billion. The deal is worth $78.46 per share for Salomon stockholders, well above Tuesday's $71.50 closing price.

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