Morgan Stanley’s $13 billion Acquisition of E-Trade

By Harvey George, Chiara Fulvi, Jonathan Fuchs (London School of Economics), Marcus Falck, and Elsa Henriksson (Stockholm School of Economics) | 08/03/2020

 

Overview of the deal

Acquirer: Morgan Stanley

Target: E-Trade

Estimated value: $13 billion

Announcement date: 20/02/2020

Acquirer Advisors: Morgan Stanley

Target Advisors: JP Morgan


Morgan Stanley announced that it will merge its full-service, financial-advisor-driven business model with E-Trade’s digital brokerage and banking business 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 February 19, 2020. The purchase, which is the biggest takeover by a U.S. bank since the 2008 financial crisis, underpins the trend among U.S. investment banks to claim a larger piece of the wealth management and consumer-facing services space, partly due to the lower cyclicality of the sector. Morgan Stanley will be better positioned to generate attractive financial returns through increased scale, improved efficiency, higher margins, stronger returns on tangible common equity, and long-term earnings accretion.


“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” - James Gorman, Chairman and CEO of Morgan Stanley

Company Details (Acquirer - Morgan Stanley)

Morgan Stanley is a fully integrated, multinational investment bank and financial services company, headquartered in Manhattan. Founded in 1935 as a result of the Glass-Steagall Act, which required the division of investment banking, it now serves clients in over 42 countries. Having historically served as an advisor to the corporations and the ultra wealthy, Morgan Stanley is now attempting to diversify its customer base into Main Street.


- Founded in: 1935

- CEO: James P. Gorman

- Number of employees: 60,300

- Market Cap: $69.00bn - EV: NM

- LTM Revenue: $41.42bn - LTM EBITDA: NM

- LTM EV/Revenue: NM - LTM EV/EBITDA: NM


Company Details (Target - E-Trade)

E-Trade is a listed U.S.-based company located in Arlington, Virginia, United States, engaged in providing financial services including trading, investing, banking and lending for retail and institutional customers. E-Trade has over 5.2m client accounts with over USD 360bn of retail client assets.


- Founded in 1982

- CEO: Michael A. Pizzi

- Number of employees: 4,300

- Market Cap: $10.21bn - EV: NM

- LTM Revenue: $2.88bn - LTM EBITDA: NM

- LTM EV/Revenue: NM - LTM EV/EBITDA: NM


Projections and Assumptions

Short-term consequences

The key short term benefit of the deal is that the combined platforms will have $3.1Tn client assets, 8.2MM retail client relationships and accounts, and 4.6MM stock plan participants, which will enable the combined business to