Morgan Stanley has entered into a definitive agreement to acquire Eaton Vance for an equity value of approximately $7bn.
Morgan Stanley Investment Management (MSIM) will become a "leading asset manager" with roughly $1.2trn assets under management and over $5bn of combined revenues, the firm said.
This merger will see the "highly complementary businesses" enhance client opportunities by bringing Eaton Vance's US retail distribution under MSIM's international banner, while Eaton Vance will "fill product gaps and deliver quality scale to the MSIM franchise".
Over many years, Eaton Vance has delivered above-market growth by aligning our business with leading trends in asset management."
Increased scale, improved distribution, revenue opportunities and costs savings of $150m, or 4% of MSIM and Eaton Vance expenses, will be made possible by the acquisition, while the transaction is expected to break even to earning per share "immediately" and become "marginally accretive thereafter".
Under the terms of the agreement, Eaton Vance shareholders will receive $28.25 per share in cash and 0.5833x of Morgan Stanley common stock, which represents a total consideration of roughly $56.50 per share.
Based on this share value, the aggregate consideration paid to holders of Eaton Vance's common stock will consist of approximately 50% cash and 50% Morgan Stanley common stock.
The agreement also contains an election procedure which allows each Eaton Vance shareholder to seek all cash or all stock, subject to a proration and adjustment mechanism.
In addition to this, Eaton Vance common shareholders will receive a one-time special cash dividend of $4.25 per share.
The acquisition is subject to customary closing conditions and is expected to close in the second quarter of 2021.
James P. Gorman, chairman and CEO of Morgan Stanley, described Eaton Vance as a "perfect fit" for Morgan Stanley, and added: "This transaction further advances our strategic transformation by continuing to add more fee-based revenues to complement our world-class investment banking and institutional securities franchise.
"With the addition of Eaton Vance, Morgan Stanley will oversee $4.4 trillion of client assets and AUM across its Wealth Management and Investment Management segments."
Thomas E. Faust Jr., CEO of Eaton Vance, said: "Over many years, Eaton Vance has delivered above-market growth by aligning our business with leading trends in asset management.
"By joining Morgan Stanley, we will be able to further accelerate our growth by building upon our common values and strengths, which are focused on our commitment to investment excellence, innovation and client service.
"Bringing Eaton Vance's leading brands and capabilities under Morgan Stanley creates a uniquely powerful set of investment solutions to serve both institutional and retail clients in the U.S. and internationally."
Dan Simkowitz, head of MSIM, added: "Eaton Vance brings strong brand recognition and high quality complementary platforms in key secular growth areas, providing numerous incremental opportunities to increase the reach of our asset management franchise and our value proposition for clients.
"These two businesses have limited overlap and are combining from positions of strength to create one of the leading asset managers in the world. We look forward to this partnership."
This article was first published by our sister title Investment Week