Morgan Stanley has agreed to buy Eaton Vance Corp for about $7 billion in a cash-and-stock deal that can quickly expand its investment-management business and further expand offerings to retail investors, the bank said on Thursday.
The transaction is the latest move by Chief Executive James Gorman to reshape Morgan Stanley into one of the biggest global money managers through a series of acquisitions that began just before he took over more than a decade ago.
Morgan Stanley's wealth management and investment management businesses already account for 40-50% of the bank's revenue.
Combining with Eaton Vance will more than triple combined assets under management within investment management, and boost that segment's annual revenue by about a third, Morgan Stanley said.
"Eaton Vance is a perfect fit," Gorman said.
Morgan Stanley has been looking at Eaton Vance for several years, Gorman said on a conference call with analysts to discuss the deal. He dismissed the idea that Morgan Stanley had overpaid, saying "you pay quality for quality." Eaton's shareholders will receive $28.25 per share in cash and 0.5833 Morgan Stanley shares for each share held. The deal represents a premium of 38% to Eaton's last closing price on Wednesday.
Eaton's shares jumped 46%, while Morgan Stanley was down 1% to $48.19.
"I don't believe they overpaid. Asset management companies have been trading at a discount, explaining the healthy premium," said Stephen Biggar at Argus Research.
Gorman also ruled out further acquisitions by the bank, saying its focus, for the next two years, would be on integrating Eaton Vance and E*Trade, which was acquired for $13 billion in a deal that completed last week.
After the deal, Morgan Stanley Investment Management's assets under management will stand at about $1.2 trillion, with revenue of $5 billion, the bank said.
Morgan Stanley said it would realize $150 million of annual savings through the deal.
Eaton will also pay its shareholders a one-time special cash dividend of $4.25 per share before the close of the deal. The deal is expected to be break-even to earnings per share immediately and marginally accretive thereafter, Morgan Stanley said.
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