Morgan Stanley’s CEO explains why the bank’s $7 billion bid for Eaton Vance makes sense even with such a high price tag: ‘I’m not ashamed to say it’s fully priced’

James Gorman, the chief executive of Morgan Stanley.

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Morgan Stanley chief executive James Gorman defended the bank’s recently announced bid for asset manager Eaton Vance despite the high price tag of the deal. 

Earlier this month, the New York-based bank announced its plans to acquire the Boston-based investment manager for $7 billion in cash and stock.

“I’m not ashamed to say it’s fully priced, but this is a quality asset,” Gorman told analysts on the bank’s 2020 third-quarter earnings call. “We will get the expenses out of this. We will consolidate this. We will generate revenues from it.”

“I’m positive that this deal is going to deliver,” he added.

Read more: Why Morgan Stanley’s $7 billion bid for a storied asset manager gives it a leg up on rivals and signals more deals to come

The announcement of the Eaton Vance deal came just six days after closing its all-stock E-Trade acquisition, which was valued at $13 billion when it was announced in February. The closure of the E-Trade deal and announcement of the Eaton Vance acquisition in such quick succession had some industry watchers wondering if Morgan Stanley might be on the precipice of a buying frenzy.

But Gorman seemed to cast cold water on that theory on the call, and laid out reasons why the Eaton Vance deal — which would beef up Morgan Stanley’s asset management division to $1.2 trillion in assets — makes sense.

“It certainly came hot on the tail of E-Trade,” Gorman said. “We didn’t want to communicate, all of a sudden, we’re trying to do an acquisition week. We’re not. We didn’t control the timing.”

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He explained that he is optimistic that Eaton Vance will bolster Morgan Stanley’s fixed income asset management business “in a way that we couldn’t have done otherwise, and it provides us some real growth endurance.”

Gorman also expects to see fund sales go up through the acquisition. 

“We have trouble getting our product distributed domestically because we don’t have a strong wholesaling sales force as others do. They do. They have a world-class one,” he said.

Representatives for Morgan Stanley did not immediately respond to a request for comment from Business Insider.

Despite its recent purchases, Gorman signaled that Morgan Stanley is not on an M&A buying spree

On the earnings call, Mike Mayo, an analyst with Wells Fargo, pressed Gorman on the bank’s long-term M&A strategy, suggesting that Morgan Stanley had altered course in recent years, “reversing some of the actions that you took,” Mayo said.

He referred to deals like Morgan Stanley’s sell-off of Van Kampen Investments for $1.5 billion a decade ago. 

“We’ve not had a long-term reversal,” Gorman said. “This is not a change in strategy at all. This is about getting scale in the businesses we want to be in.”

Gorman pointed to other instances in which the bank has sold off some of its assets, including its 2011 split from hedge fund FrontPoint; the 2012 sale of resident mortgage loan provider Saxon Mortgage Services; and its 2014 sale of oil pipeline company Transmontaigne. 

Those deals demonstrate the bank …read more

Source:: Businessinsider – Finance


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