Morgan Stanley to Buy Eaton Vance in a $7 Billion Deal

Morgan Stanley to Buy Eaton Vance in a $7 Billion Deal
October 9, 2020

 

Morgan Stanley (NYSE: MS) is acquiring asset management firm Eaton Vance Corp (NYSE: EV) for roughly $7 billion in a cash-and-stock deal. The takeover cements Morgan Stanley’s CEO James Gorman’s efforts to propel the financial institution’s investment management business. Following the news, the stock of Eaton surged $19.71 or 48.41% to close at 60.65. Morgan Stanley’s stock gained 0.60% or $0.29 to close at $49.00.

As per the takeover agreement, the Boston, Massachusetts-based Eaton’s shareholders will be paid $28.25 per share in cash, in addition to 0.5833 Morgan Stanley shares for each share of Eaton they own. Eaton’s shareholders will also receive a “one-time special cash dividend of $4.25 per share” before the deal is closed.

Following the acquisition, the New York-based Morgan Stanley’s Investment Management division would manage assets worth $1.20 trillion, and revenue would rise to $5 billion.

In recent times, Eaton Vance has recorded tremendous success, partly due to its “Parametric business of index-tracking custom portfolios,” which holds assets worth $300 billion.

Morgan Stanley’s CEO pointed out that the acquisition would enable the bank to achieve its objective of improving its investment management business. Furthermore, the bank stated that it would reach $150 million in annual savings from the deal. With immediate effect, the deal will be break-even to earnings per share and slightly accretive thenceforth, Morgan Stanley revealed.

Gorman said, “Eaton Vance is a perfect fit.” The CEO further stated that the institution was contemplating the acquisition for “several years.”

The CEO also clarified that Morgan Stanley is not looking for further acquisitions in the investment banking domain. He said, “We’re not doing more acquisitions, we’ve made our bed, we’re going to lie in it.”

After reining in as CEO a decade back, Gorman has made huge acquisitions, including the $13 billion takeover of E*Trade earlier this year. As mentioned earlier, the deal will assist in boosting the performance of the investment banking industry while also safeguarding the bank from slim periods for its trading and investment banking divisions.

Since the 2008-09 financial crisis, the investment banking business has been facing a lot of difficulties as some of the banks were forced to dilute their holdings in funds in adherence to Volcker Rule, a federal regulation that bans banks from carrying out a pre-determined list of investment activities using their own money, including proprietary trading (section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act).

The acquisition deal is expected to keep the stock of Morgan Stanley slightly bullish in the days ahead. Eaton Vance’s stock has closed higher than the acquisition price of roughly $56, which can be calculated using yesterday’s closing rates: [($28.25 + {0.5833*49} =$56.83)]. Therefore, we can expect Eaton Vance to consolidate in the $55-$60 range.

The price chart of Morgan Stanley has closed above its 50-day moving average and near the strong support level of 47. The next resistance is anticipated only near 55. Additionally, the stochastic oscillator is near the oversold region. Therefore, we can expect the stock to rally in the short-term.

MS - technical analysis - 9th October 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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