A Bid of $75 Billion for Morgan Stanley?

Company is also reportedly seeking to sell its Discover Card division for $8 billion to $9 billion.
Stephen TaubApril 5, 2005

HSBC Holdings PLC is mulling a bid to buy Morgan Stanley, the gilded investment bank, for a whopping $75 billion, The Independent reported over the weekend. Analysts downplayed the London newspaper’s report on Monday because they think the price tag is too high.

Another report about Morgan Stanley, however, seemed more plausible to the market. According to Dow Jones, which cited one unidentified source close to the company’s board, the board has approved the sale of the bank’s Discover Card credit division. The source told the wire service that the deal could net $8 billion to $9 billion.

Dow Jones reported that a Morgan Stanley spokeswoman declined to comment on the report. A Morgan Stanley spokeswoman called the divestiture report, a “market rumor,” according to the Associated Press.

Investors, however, apparently believe it. Morgan Stanley’s stock jumped about 3.6 percent on Monday. Merrill Lynch & Co. analyst Edward Najarian said Friday that Bank of America Corp. could be a potential buyer of Discover, according to AP.

The sale and divestiture rumors come amid a war of words between, on the one side, former executives of Morgan’s investment business who are still significant shareholders of Morgan Stanley and, on the other, Philip Purcell, the chairman and CEO of Morgan Stanley, and the company’s board. Dean Witter Discover was headed up by Purcell when it was bought by Morgan Stanley in 1997.

In a separate report, Dow Jones said that Morgan Stanley ‘s board told employees in a letter that it stands fully behind Purcell and his management team. The former investment bankers and current shareholders of Morgan Stanley have taken out full-page ads calling for Purcell’s ouster.

In an ad published on Monday, they say in a letter that Purcell has created “an atmosphere of intimidation and fear at the firm in which you may feel that you cannot express your views without retaliation.”

The former investment bankers assert that Purcell is purging or pushing out former executives who came up through the Morgan Stanley investment banking side, including three senior capital markets executives who quit last week, according to published report.

“There is no fair or compelling case for a change in the CEO, an action that would involve risk and discontinuity,” the board wrote in a “message to all employees” obtained by Dow Jones.