Skip to main content

You are here


Morgan Stanley Makes A(nother) Big Move

Practice Management

Having just last week closed its acquisition of E*Trade, Morgan Stanley has now agreed to purchase Eaton Vance Corp. for about $7 billion. 

Morgan Stanley says the combination will better position the organization to “generate attractive financial returns through increased scale, improved distribution, cost savings of $150MM—or 4% of MSIM and Eaton Vance expenses—and revenue opportunities.” 

It’s another big move for James P. Gorman, Morgan Stanley Chairman and Chief Executive Officer James Gorman, and comes less than a week after the firm’s acquisition of E*Trade in an all-stock transaction. It’s also sure to have significant consequences for the wealth management space generally, and for the retirement services market specifically, as the nation’s retirement savers age. 

Eaton Vance has over $500 billion in assets under management, and brings to the table not only its own fund family, but also separately managed account services, and responsible ESG investing through Calvert Funds. In addition, Morgan Stanley says that the organization “fills product gaps and delivers quality scale to the MSIM franchise,” and also enhances client opportunities, “by bringing Eaton Vance’s leading U.S. retail distribution together with MSIM’s international distribution.” Morgan Stanley had sold its retail asset-management business following the 2008 financial crisis. 

Transaction ‘Dets’

Eaton Vance shareholders will receive about $28.25 a share in cash and 0.5833 shares of Morgan Stanley (value of about $56.50/share[i]—about 38% above Eaton Vance’s closing price on Wednesday). According to a press release, the acquisition (expected to close in Q2 2021), Morgan Stanley Investment Management will have about $1.2 trillion under management and more than $5 billion in revenue. The firm says that Morgan Stanley will now oversee $4.4 trillion of client assets and AUM across its Wealth Management and Investment Management segments. 

According to the press release, by financing the transaction with 50% cash, Morgan Stanley will utilize approximately 100 bps of excess capital, and the firm’s common equity tier 1 ratio is expected to remain approximately 300 bps above the its stress capital buffer (SCB) requirement of 13.2%. The transaction is expected to be “breakeven to earnings per share immediately and marginally accretive thereafter, with fully phased-in cost synergies, and add approximately 100 bps to return on tangible common equity.”

Gorman said two years ago that he wanted his asset management unit to hit $1 trillion in client assets in coming years. Mission accomplished. And then some. 

[i]The merger agreement also contains an election procedure allowing each Eaton Vance shareholder to seek all cash or all stock, subject to a proration and adjustment mechanism. In addition, Eaton Vance common shareholders will receive a one-time special cash dividend of $4.25 per share to be paid pre-closing by Eaton Vance to Eaton Vance common shareholders from existing balance sheet resources. It is anticipated that the transaction will not be taxable to Eaton Vance shareholders to the extent that they receive Morgan Stanley common stock as consideration. According to a press release, the transaction has been approved by the voting trust that holds all of the voting common stock of Eaton Vance.