Wall Street banker Morgan Stanley today announced a $13 billion deal to acquire discount brokerage E*Trade Financial Corporation in an all-stock transaction, marking the biggest such acquisition since the 2008-2009 financial crisis.
Morgan Stanley and E*Trade Financial Corporation have entered into a definitive agreement under which Morgan Stanley will acquire E*Trade, a leading financial services company and pioneer in the online brokerage industry, in an all-stock transaction valued at approximately $13 billion.
Under the terms of the agreement, E*Trade stockholders will receive 1.0432 Morgan Stanley shares for each E*Trade share, which represents per share consideration of $58.74 based on the closing price of Morgan Stanley common stock on 19 February 2020.
The combination will significantly increase the scale and breadth of Morgan Stanley’s wealth management franchise, and positions it to be an industry leader in wealth management across all channels and wealth segments. 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.
Morgan Stanley’s full-service, advisor-driven model coupled with E*Trade’s direct-to-consumer and digital capabilities, will allow the combined business to have best-in-class product and service offerings to support the full spectrum of wealth.
“E*Trade represents an extraordinary growth opportunity for our wealth management business and a leap forward in our wealth management strategy. The combination adds an iconic brand in the direct-to-consumer channel to our leading advisor-driven model, while also creating a premier Workplace wealth provider for corporations and their employees. E*Trade’s products, innovation in technology, and established brand will help position Morgan Stanley as a top player across all three channels: Financial Advisory, Self-Directed, and Workplace,” said James Gorman, chairman and CEO of Morgan Stanley.
“In addition, this continues the decade-long transition of our Firm to a more balance sheet light business mix, emphasizing more durable sources of revenue.”
He said Mike Pizzi, CEO of E*Trade, will join Morgan Stanley and 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.”
Morgan Stanley will in addition invite one of E*Trade’s independent directors to join its board. “We look forward to welcoming the infusion of management and technology talent that E*Trade will bring to Morgan Stanley.”
“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,” said Mike Pizzi.
The transaction will create a leading player in Workplace Wealth, combining E*Trade’s leading US stock plan business with `Shareworks’ by Morgan Stanley, a top provider of public stock plan administration and private cap table management solutions. This combination will enable Morgan Stanley to accelerate initiatives aimed at enhancing the workplace offering through online brokerage and digital banking capabilities, providing a significantly enhanced client experience.
E*Trade, a pioneer in the digital brokerage and banking space for nearly 40 years, will complement Morgan Stanley’s leading advisor-facing technology. E*Trade also provides a full suite of digital banking services, including direct integration with brokerage accounts, checking and high-yield savings accounts, significantly accelerating Morgan Stanley’s digital banking efforts.
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 per cent of the combined entity’s pre-tax profits, excluding potential synergies, compared to only approximately 26 per cent in 2010.
Shareholders from both companies will benefit from potential cost savings estimated at approximately $400 million from maximizing efficiencies of technology infrastructure, optimising shared corporate services and combining the bank entities, as well as potential funding synergies of approximately $150 million from optimising E*Trade’s approximate $56 billion of deposits.
In addition, Morgan Stanley will have enhanced technology and service capabilities to capture a larger portion of the estimated approximate $7.3 trillion of combined current customer assets held away, which will drive significant revenue opportunities.
The acquisition is subject to customary closing conditions, including regulatory approvals and approval by E*Trade shareholders, and is expected to close in the fourth quarter of 2020.