Morgan Stanley to buy Eaton Vance for $7 billion in asset management push

The headquarters of Morgan Stanley in New York.

Shannon Stapleton | Reuters

Morgan Stanley said on Thursday it would buy asset management firm Eaton Vance for about $7 billion in a cash-and-stock deal that advances Chief Executive James Gorman’s push to grow the bank’s investment management business.

The deal will help shore up the performance of the unit, its smallest business, while also insulating the bank from weak periods for its main trading and investment banking operations.

Morgan Stanley said the acquisition would boost Morgan Stanley Investment Management’s assets under management to about $1.2 trillion and revenue to $5 billion.

“Eaton Vance is a perfect fit,” Gorman said in the statement. At an analyst call to discuss the deal, the CEO said Morgan Stanley had been looking at the deal for “several years”.

Gorman also ruled out the likelihood of further acquisitions. “We’re not doing more acquisitions, we’ve made our bed, we’re going to lie in it.”

Eaton’s shareholders will receive $28.25 per share in cash and 0.5833 Morgan Stanley shares for each share held. The deal represents a premium of 38% to Eaton’s last closing price on Wednesday.

Eaton’s shares jumped 36.3% to $55.79, while Morgan Stanley was down 2.6% in premarket trading.

Since taking the helm a decade ago, Gorman has pulled off a number of big acquisitions including E*Trade earlier this year for $13 billion, and the latest buyout is his attempt to grow the asset management unit quickly.

The business has struggled ever since the financial crisis of 2008-09, when some U.S. banks were forced to sell their stakes in funds to comply with the Volcker Rule.

The Volcker Rule was created by the 2010 Dodd-Frank Act to bar banks that accept taxpayer-insured deposits from engaging in short-term speculative trading and risky investments.

Morgan Stanley said it would realize $150 million of annual savings through the deal.

Eaton will also pay its shareholders a one-time special cash dividend of $4.25 per share before the close of the deal. The deal is expected to be break-even to earnings per share immediately and marginally accretive thereafter, Morgan Stanley said.

Eaton will also pay its shareholders a one-time special cash dividend of $4.25 per share before the close of the deal.