Morgan Stanley (NYSE:MS) has moved to strengthen its investment management business by acquiring asset management firm Eaton Vance Corp (NYSE:EV). The financial juggernaut is to pay $7 billion in the cash and stock deal, conversely taking its assets under management to $1.2 trillion, and revenues to $5 billion.
Morgan-Eaton Vance Deal
Under the terms of the deal, Eaton shareholders are to walk away with $28.25 for each share held and 0.5833 of Morgan Stanley shares. The deal represents a 38% premium to Eaton closing price on Wednesday. With the deal, Morgan Stanley expects to realize $150 million in annual savings.
Eaton has confirmed plans to pay shareholders a special $4.25 a share cash dividend before the deal closes. The deal should thereafter break-even to earnings and be marginally accretive.
The acquisition is part of Chief Executive Officer, James Gorman push to shore up the performance of the investment management business. The unit is currently the smallest business. The acquisition should also help insulate Morgan Stanley against weak periods from its trading and investment banking operations.
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According to Gorman, Morgan Stanley has been looking to tie a deal for Eaton Vance for quite some time. The company won’t be looking to acquire any other businesses focusing on integrating Eaton and making it work.
Investment Management Focus
Morgan Stanley has been on an acquisition spree in recent years as it looks to expand its footprint into some of the fastest-growing segments in the financial segment. Early this year, it acquired E*TRADE for $13 billion.
Morgan Stanley Is hoping Eaton will be the catalyst that will help reinvigorate growth in its investment management segment. The business has struggled to generate the desired returns since the 2009 financial crisis as banks were forced to sell stakes in funds as part of the Volcker rule.
Under the Volcker Rule, banks that accept taxpayers-insured deposits are prohibited from engaging in short-term trading, among other risky investments.
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