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Morgan Stanley Inks Deal to Acquire Eaton Vance, Boosts AUM

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Morgan Stanley (MS - Free Report) recently entered into an acquisition deal with Boston, MA-based Eaton Vance Corp. , per which the former will acquire the latter for an equity value of about $7 billion. The Voting trust holding all the voting common stock of Eaton Vance has approved the deal.

Notably, post the deal’s closure, Morgan Stanley Investment Management (MSIM) will have $1.2 trillion of assets under management (AUM) and more than $5 billion of combined revenues. The deal is likely to position Morgan Stanley as a leader in the Wealth Management industry across all channels and segments, with significant increase in the scale and breadth of its franchise.

The acquisition, supporting Morgan Stanley’s strategic transformation with three world-class businesses of scale, including Institutional Securities, Wealth Management and Investment Management, aims to grab the market opportunities and scale the client base higher, striking a balance between institutional and retail client with investment solutions in the United States and worldwide. Moreover, the companies’ expanded scale, technological advancement and increased product offerings will help capitalize the market share.

However, the deal awaits certain customary approvals. Further, the transaction is anticipated to close in the second quarter of 2021.

"Eaton Vance is a perfect fit for Morgan Stanley," said James P. Gorman, chairman and chief executive officer of Morgan Stanley. "This transaction further advances our strategic transformation by continuing to add more fee-based revenues to complement our world-class investment banking and institutional securities franchise. With the addition of Eaton Vance, Morgan Stanley will oversee $4.4 trillion of client assets and AUM across its Wealth Management and Investment Management segments," noted Gorman.

Terms of the Deal

Per terms of the deal, each common shareholder of Eaton Vance will get stock equivalent to 0.5833 of Morgan Stanley shares for every Eaton Vance share held and $28.25 per share in cash. This represents a per share value of $56.50, consisting of about 50% cash and 50% Morgan Stanley common stock paid to common shareholders of Eaton Vance.

The terms also include an election procedure giving all Eaton Vance shareholders the option to choose for all cash or all stock, which is subject to a proration and adjustment mechanism. Notably, pre-closing of the deal, a one-time special cash dividend of $4.25 per share will be paid to Eaton Vance common shareholders from the current balance sheet resources.

Strategically, the combined entity will enhance through advanced technologies, innovative products and create a competitive edge with financial stability.

Financial Benefits

Both firms foresee long-term financial benefits from the transaction, which seems attractive for shareholders. Through increased scale, improved distribution, cost savings of $150 million — or 4% of MSIM, and Eaton Vance expenses and revenue opportunities, the combined entity will likely generate stellar financial returns for Morgan Stanley.

With 50% cash-financing of the deal, Morgan Stanley is likely to use approximately 100 basis points (bps) of excess capital, while the bank’s common equity tier 1 ratio is expected to remain around 300 bps above the stress capital buffer (SCB) requirement of 13.2%.

Additionally, a break-even to earnings per share is anticipated immediately and marginally accretive thereafter, with fully phased-in cost synergies. Further, the transaction is likely to add about 100 bps to return on tangible common equity.


Morgan Stanley’s acquisition of Eaton Vance is in sync with its aim for transition with diversified revenue sources. The deal is capable to withstand the uncertainty surrounding the economy over the coronavirus pandemic.

In the current scenario, banks are moving toward consolidations to dodge the heightened costs of regulatory compliances and increased investments in technology, in a bid to be competitive. In addition, the pandemic and its impact on businesses have escalated the concerns for survival. Apart from this, the current rise in passive, low-cost index funds has taken a toll on asset managers, eroding overall profitability.

Therefore, such moves have prompted investors to become optimistic about banks’ growth prospects. Shares of Morgan Stanley have rallied 21.2%, over the past year, while Eaton Vance recorded 43.4% growth.

Currently, Morgan Stanley carries a Zacks Rank #3 (Hold), while Eaton Vance carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Similar Moves

Recently, Morgan Stanley concluded the acquisition of E*TRADE Financial in an all-stock deal worth $13 billion and now holds $3.3 trillion in assets. The acquisition move follows the bank’s efforts to record revenues from balance-sheet light and more lasting sources of revenues.

Earlier this week, Charles Schwab (SCHW - Free Report) concluded the acquisition of TD Ameritrade Holding for roughly $22 billion. This has created a behemoth in the online brokerage space with combined client assets of more than $6 trillion and serving nearly 28 million brokerage accounts.

In August, Franklin Resources (BEN - Free Report) , operating as Franklin Templeton, completed the buyout of Legg Mason, Inc. and its specialist investment managers for $4.5 billion. The transaction is likely to generate upper twenties percentage GAAP EPS accretion in fiscal 2021 (based on street consensus earnings estimates for each company), excluding one-time charges, non-recurring and acquisition associated expenses.

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