Morgan Stanley has announced the acquisition deal of E*TRADE Financial Corporation in an all-stock transaction valued at approximately $13 billion for which E*TRADE stockholders will receive 1.0432 Morgan Stanley shares for each E*TRADE share. This represents per share consideration of $58.74 based on the closing price of Morgan Stanley common stock on February 19, 2020. The deal is expected to close in the fourth quarter of 2020.
E*TRADE has over 5.2 million client accounts with over $360 billion of retail client assets, adding to Morgan Stanley’s existing 3 million client relationships and $2.7 trillion of client assets. The combined platforms will have $3.1Tn client assets, 8.2MM retail client relationships and accounts, and 4.6MM stock plan participants. This will also increase the scale of Wealth Management and fill product and services gaps through complementary offerings, as well as enhance digital capabilities. The deal will position Morgan Stanley as a top player across all three channels: Financial Advisory, Workplace, and Self-Directed.
The architects of the acquisition expect a significant cost and funding synergies will result in stronger financial performance and shareholder value creation with the combination accelerating Morgan Stanley’s transition to a more balance sheet light business mix and more durable sources of revenue. The transaction is expected to increase the Firm’s return on tangible common equity by more than 100bps with fully phased-in cost and funding synergies and improve Wealth Management’s pre-tax profit margin to over 30% James Gorman, Chairman and CEO of Morgan Stanley, said:
“I am delighted that Mike Pizzi, CEO of E*TRADE, will be joining Morgan Stanley. Mike will continue to run the E*TRADE business within the Morgan Stanley franchise and lead the ongoing integration effort. Mike will report to me and will join the Morgan Stanley Operating and Management Committees. In addition, we will invite one of E*TRADE’s independent directors to join our Board. We look forward to welcoming the infusion of management and technology talent that E*TRADE will bring to Morgan Stanley.”
Mike Pizzi, Chief Executive Officer of E*TRADE, commented:
“Since we created the digital brokerage category nearly 40 years ago, E*TRADE has consistently disrupted the status quo and delivered cutting-edge tools and services to investors, traders, and stock plan administrators. By joining Morgan Stanley, we will be able to take our combined offering to the next level and deliver an even more comprehensive suite of wealth management capabilities. Bringing E*TRADE’s brand and offerings under the Morgan Stanley umbrella creates a truly exciting wealth management value proposition and enables our collective team to serve a far wider spectrum of clients.”
The transaction adds approximately $56 billion of low-cost deposits, which will provide significant funding benefits to Morgan Stanley. Upon integration, the combined Wealth and Investment Management businesses will contribute approximately 57% of the Firm’s pre-tax profits, excluding potential synergies, compared to only approximately 26% in 2010.
Shareholders from both companies will benefit from potential cost savings estimated at approximately $400 million from maximizing efficiencies of technology infrastructure and potential funding synergies of approximately $150 million from optimizing E*TRADE’s approximate $56 billion of deposits.
