DLJ was founded in 1959 by William Donaldson, Dan Lufkin, and Richard Jenrette, which whom set out with $100,000 to create an equity research firm that would serve institutional shareholders. The firm went public in 1970 after gradually increasing the services provided to clients and diversifying in the face of competition. DLJ was a member of NYSE and retained their membership by offering shares of itself to the public. DLJ sold itself to Equitable in 1985, after facing capital requirements. Equitable was a mutual life insurance company, owned by policyholders. Jenrette joined Equitable as chief investment officer, and he later became chairman of the company in 1990. He initiated a restructuring of Equitable in response to serious
A disadvantage is the agency conflict between old stakeholders and new stakeholders. The underwriting process begins with DLJ planning to offer 9.2 million shares of stock, with 5.9 million shares consisting of secondary shares sold by Equitable and 3.3 million of primary shares offered by the company. Since the shares sold by Equitable were already outstanding, they would not increase the number of shares outstanding. 7.36 million shares were to be sold domestically and 1.84 million abroad. Equitable granted the underwriters a “green shoe”, a 30 day option to purchase 1.38 million additional shares to cover any over-allotments. After the offering, it was anticipated that they would have 51.5 million shares outstanding, and Equitable would own 83% of DLJ’s stock (80% if the green shoe were exercised). DLJ obtained its own debt rating from Standard & Poor’s of A- and Baa1 from Moody’s. An increase in DLJ’s leverage would not affect Equitable’s debt rating A+ and A2. During the underwriting process, DLJ asked the underwriters to reserve 550,000 shares to sales to directors and current and former employees of DLJ and Equitable. These groups would have the opportunity to purchase the reserved shares at a price equal to the initial public offering price less underwriting discounts and commissions, and would be prohibited from selling them for five months. After selecting Goldman Sachs, Merrill Lynch, and Morgan