Why Morgan Stanley (MS) Is Buying Eaton Vance (EV) For $7 Billion

By Amit Chowdhry ● October 8, 2020
  • Morgan Stanley (NYSE: MS) and Eaton Vance Corp. (NYSE: EV) have announced a $7 billion acquisition deal. These are the details.

Morgan Stanley (NYSE: MS) and Eaton Vance Corp. (NYSE: EV) have entered a definitive agreement under which Morgan Stanley will acquire Eaton Vance — which is a leading provider of advanced investment strategies and wealth management solutions with over $500 billion in assets under management (AUM), for an equity value of approximately $7 billion. This acquisition advances Morgan Stanley’s strategic transformation with three world-class businesses of scale: Institutional Securities, Wealth Management and Investment Management.

Morgan Stanley Investment Management (MSIM) is going to be a leading asset manager with approximately $1.2 trillion of AUM and over $5 billion of combined revenues. And MSIM and Eaton Vance are highly complementary with limited overlap in investment and distribution capabilities.

Eaton Vance is a market leader in key secular growth areas, including in individual separate accounts, customized investment solutions through Parametric, and responsible ESG investing through Calvert. And a leader in value-add fixed income solutions, Eaton Vance fills product gaps and delivers quality scale to the MSIM franchise. This combination will also enhance client opportunities, by bringing Eaton Vance’s leading U.S. retail distribution together with MSIM’s international distribution.

This transaction is attractive for shareholders and will deliver long-term financial benefits. And both companies have demonstrated industry-leading organic growth and have strong cultural alignment. The combination is going to better position Morgan Stanley to generate attractive financial returns through increased scale, improved distribution, cost savings of $150 million – or 4% of MSIM and Eaton Vance expenses – and revenue opportunities.

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

Under the terms of the merger, Eaton Vance shareholders will receive $28.25 per share in cash and 0.5833x of Morgan Stanley common stock, representing a total consideration of approximately $56.50 per share. And based on the $56.50 per share, the aggregate consideration paid to holders of Eaton Vance’s common stock will consist of approximately 50% cash and 50% Morgan Stanley common stock.

This 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 expected that the transaction will not be taxable to Eaton Vance shareholders to the extent that they receive Morgan Stanley common stock as consideration. The deal has been approved by the voting trust that holds all of the voting common stock of Eaton Vance.

And the acquisition is subject to customary closing conditions. The deal is expected to close in the second quarter of 2021.

KEY QUOTES:

“Eaton Vance is a perfect fit for 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.”

— James P. Gorman, Chairman and Chief Executive Officer of Morgan Stanley

“Over many years, Eaton Vance has delivered above-market growth by aligning our business with leading trends in asset management. By joining Morgan Stanley, we will be able to further accelerate our growth by building upon our common values and strengths, which are focused on our commitment to investment excellence, innovation and client service. Bringing Eaton Vance’s leading brands and capabilities under Morgan Stanley creates a uniquely powerful set of investment solutions to serve both institutional and retail clients in the U.S. and internationally.”

— Thomas E. Faust, Jr., Chief Executive Officer of Eaton Vance

“Eaton Vance brings strong brand recognition and high quality complementary platforms in key secular growth areas, providing numerous incremental opportunities to increase the reach of our asset management franchise and our value proposition for clients. These two businesses have limited overlap and are combining from positions of strength to create one of the leading asset managers in the world. We look forward to this partnership.”

— Dan Simkowitz, Head of MSIM