Morgan Stanley has agreed to acquire Eaton Vance for $7 billion in a move to boost its profile in investment management as it continues to shift away from trading.
As The Wall Street Journal reports, “Asset management, which produces steady fees and requires little capital to run, has become a priority for banks including Goldman Sachs Group Inc. and JPMorgan Chase & Co.”
“Morgan Stanley is a midsize player in that space, too small to reap the cost savings of being a giant like BlackRock Inc. but too big to credibly style itself a boutique,” the Journal said. “By acquiring Eaton Vance, it will join the club of $1 trillion money managers.”
Eaton Vance, which traces its roots to the 1920s, manages about $500 billion in assets. The deal with Morgan Stanley will create a money manager with about $1.2 trillion in assets and $5 billion in annual revenue.
Under the terms of the acquisition, Eaton Vance shareholders will receive $28.25 per share in cash and 0.5833 Morgan Stanley shares for each share they hold, representing a 38% premium to Eaton’s closing price on Wednesday.
The two companies “have limited overlap and are combining from positions of strength to create one of the leading asset managers in the world,” Dan Simkowitz, head of Morgan Stanley Investment Management, said in a news release.
Morgan Stanley’s asset management arm, which goes back to the 1940s, is the smallest of the firm’s four businesses, contributing less than 10% of its revenue last year. But according to the WSJ, CEO James Gorman “has long had a soft spot for it because it has higher returns, requires little capital to run and rarely screws up.”
The bank last week completed its $11 billion takeover of discount broker E-Trade Financial as part of Gorman’s push to reshape Morgan Stanley through acquisitions.
Eaton Vance was created in 1979 by the merger of Eaton & Howard and Vance, Sanders & Co. Eaton & Howard launched in 1924. “The position of an independent asset manager of our size [without more distribution] feels increasingly vulnerable,” CEO Thomas Faust told the Boston Globe.
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