Morgan Stanley announced it has entered into a definitive agreement to acquire money manager Eaton Vance, which has over $500 billion in assets under management, in a deal with an equity value of roughly $7 billion.
“Eaton Vance is a perfect fit for Morgan Stanley,” said James Gorman, the chairman and CEO of the wirehouse, in a statement. “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.”
Once the deal is completed, “Morgan Stanley will oversee $4.4 trillion of client assets and AUM across its wealth management and investment management segments,” Gorman said.
This deal comes just six days after Morgan Stanley wrapped up its purchase of E-Trade for $13 billion.
While Eaton Vance specializes in fixed income, its operations include Parametric — which offers customized separately managed accounts and direct indexing — and ESG investment provider Calvert.
Dan Simkowitz, the head of Morgan Stanley Investment Management, said the deal provides opportunities for the firm to increase the reach of its asset management operations and its value proposition to clients since the “two businesses have limited overlap and are combining from positions of strength.”
The acquisition is expected to close by the second quarter of 2021. Half the deal is being financed with cash using Morgan’s Stanley’s excess capital.
Morgan Stanley said the acquisition of Eaton Vance “will better position the firm 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.”
Under the terms of the agreement, Eaton Vance shareholders will receive, per share, $28.25 in cash and 0.5833 shares of Morgan Stanley common stock, representing a total consideration of about $56.50 per share — a 38% premium over Eaton Vance’s closing price Wednesday, according to Bloomberg.
Based on the $56.50 per share valuation, holders of Eaton Vance’s common stock will receive roughly 50% cash and 50% Morgan Stanley common stock, but they can elect 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 before the deal is closed from existing balance sheet resources of Eaton Vance.
Morgan Stanley said the transaction is expected to be “breakeven” to earnings per share immediately and marginally accretive thereafter, with fully phased-in cost synergies, and add some 100 basis points to return on tangible common equity.