Morgan Stanley (NYSE: MS) has agreed to buy an additional 14% stake in Morgan Stanley Smith Barney (MSSB) from Citigroup Inc. (NYSE: C) for $1.89 billion. The amount puts the full value of MSSB at $13.5 billion, about 40% below the value Citigroup had placed on the brokerage in July.
Citigroup owns 49% of MSSB, or did, until today’s agreement. Morgan Stanley has agreed to purchase the remaining 35% stake by June 2015 at the $13.5 billion valuation. Morgan Stanley also has agreed to acquire the first part of that remaining stake — 15% — by June of 2013.
As part of the deal, Morgan Stanley received control of about $5.5 billion in MSSB deposits at no premium. Once the deal is completed, the bank will have about $122 billion in MSSB deposits.
MSSB employed nearly 17,000 brokers as of the end of June, more than any other U.S. brokerage firm. In June, Morgan Stanley said it planned to change the name of brokerage to Morgan Stanley Wealth Management.
James Gorman, chairman and CEO of Morgan Stanley, said:
This mutually beneficial agreement gives both parties certainty and transparency on price and timing, and is a significant milestone for Morgan Stanley in the implementation of our strategy.
Strategy was also on the mind of Vikram Pandit, CEO of Citigroup:
As we have shown, the more we put the past behind us, the more we can focus on our future, which is in the core businesses in Citicorp. Since forming Citi Holdings, we have reduced its assets by over $600 billion, and we will continue to do so in an economically rational manner.
The final valuation of MSSB was determined by an outside appraiser.
Morgan Stanley’s shares are up about 1.7% at $16.89 in a 52-week range of $11.58 to $21.19.
Citigroup’s shares are up about 1.9% at $32.43 in a 52-week range of $21.40 to $38.40.