Hungry Morgan Stanley Plans Next Big Acquisition

What’s happening: Morgan Stanley announced plans to buy asset manager Eaton Vance Corp in a cash and stock transaction valued at around $7 billion.

What happened: The latest deal follows on the heels of another blockbuster acquisition by Morgan Stanley earlier this year.

Given declining fees in the fund management industry, stiff competition, and challenges in generating organic growth, larger firms are looking to expand their business through the M&A route. Analysts expect more consolidation in the industry going ahead.

Why it matters: The wealth and investment management verticals are major contributors to Morgan Stanley's overall business, generating up to 50% of the bank’s total sales.

The addition of Eaton Vance will almost double the AUMs (assets under management) under Morgan Stanley’s investment management business. The division’s annual sales are also likely to increase by approximately a third due to the acquisition.

As per the agreement, Eaton Vance’s shareholders will receive $28.25 a share in cash and 0.5833 per share of Morgan Stanley’s stock. The deal represents a premium of 38% over Eaton Vance’s closing price on Wednesday. Eaton Vance’s stockholders will also receive a one-time dividend of $4.25 per share before the deal closes.

The acquisition is expected to close in the second quarter of next year, subject to receiving regulatory and other approvals.

The deal with Eaton Vance follows closely Morgan Stanley’s recent takeover of E*Trade Financial Corp, which closed only a week back. Analysts expect to see more consolidation in the asset management industry due to low income and competition pressures.

How shares responded: Morgan Stanley’s shares rose 0.6% to close at $49.00 on Thursday following the acquisition announcement, while Eaton Vance’s stock rallied 48.1% to $60.65.

What to watch: Investors will monitor approvals of Morgan Stanley’s latest acquisition as well as Eaton Vance’s business, which has been plagued by low capital charges. Markets will also look out for similar deals by other large investment banks.

Investors also look forward to Morgan Stanley’s third-quarter results, which are scheduled for release on October 15.

European stocks will be in focus today, after closing higher in the previous session.

Context: Stocks in the European markets ended higher on Thursday with investors monitoring progress on stimulus talks in the US.

Details: After a couple of days of concerns around stimulus talks being paused, US President Donald Trump said he will extend his support for relief aid for the airlines sector, along with other standalone stimulus measures.

Airline stocks moved sharply higher on Thursday. Shares of British Airways parent IAG climbed 10%, while the manufacturer of airplane engines Rolls Royce saw its shares jump around 25%.

Investor sentiment was also lifted by Germany reporting an increase in exports for the fourth successive month. Exports from the country grew 2.4% in August, following a 4.7% rise in July.

The pan-European Stoxx 600 rose 0.8% on Thursday, with oil and gas stocks leading the rise, gaining around 1.8%. The German DAX 30 added 0.9%, the French CAC 40 rose 0.6%, and the UK FTSE 100 closed higher by 0.5%.

What to watch: With no major economic data expected from the Eurozone today, markets will keep an eye on the progress of stimulus talks in the US. Investors continue to focus on the covid-19 numbers, with total cases surpassing 36.4 million globally.

Other Markets: US indices closed mostly higher on Thursday, with the Dow Jones index, S&P 500 and Nasdaq 100 up 0.43%, 0.80% and 0.50%, respectively.

Italy's industrial production, Russia’s total vehicle sales, Brazil's annual inflation rate, Canada’s employment change and unemployment rate as well as the US wholesale inventories and Baker Hughes crude oil rigs.

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