Morgan Stanley (NYSE: MS), one of the five largest U.S. banks, announced Thursday morning that it has reached an agreement to acquire E*Trade Financial Corp. (NASDAQ: ETFC) in an all-stock transaction valued at approximately $13 billion, roughly a 30% premium to E*Trade’s market cap of just over $10 billion at Wednesday’s closing bell.
E*Trade shareholders are set to receive 1.0432 shares of Morgan Stanley shares for each E*Trade share, representing a consideration of $58.74 based on Wednesday’s closing price (a premium of 30.7%).
“Morgan Stanley” is now the answer to the question of “Who will acquire E*Trade?” Since Charles Schwab Corp. (NYSE: SCHW) paid $26 billion in stock to acquire TD Ameritrade Holding Corp. (NASDAQ: AMTD) last November, the betting favored Goldman Sachs Group Inc. (NYSE: GS). The bank either decided to stick with its in-house Marcus online brokerage service or was outbid by Morgan Stanley, which also lacked an online discount brokerage service. Goldman recently announced its digital wealth management tool would be released this year and that online checking accounts would be coming in 2021.
Among America’s other giant banks, Bank of American Corp. (NYSE: BAC) already owns Merrill Lynch, and, JPMorgan Chase & Co. (NYSE: JPM) and Wells Fargo & Co. (NYSE: WFC) also already own brokerage services and have been investing in online technology.
Morgan Stanley’s board chair and CEO, James Gorman, said:
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.
Mike Pizzi, E*Trade’s CEO, added:
By joining Morgan Stanley, we will be able to take our combined offering to the next level and deliver an even more comprehensive suite of wealth management capabilities. Bringing E*TRADE’s brand and offerings under the Morgan Stanley umbrella creates a truly exciting wealth management value proposition and enables our collective team to serve a far wider spectrum of clients.
Gorman said that Pizzi will continue to run the E*Trade business and join the bank’s operating and management committees. One E*Trade board member also will be invited to join Morgan Stanley’s board.
According to the announcement, E*Trade has more than 5.2 million client accounts with more than $360 billion of retail client assets, adding to Morgan Stanley’s existing 3 million client relationships and $2.7 trillion of client assets.
The transaction is expected to close in the fourth quarter of this year, pending customary regulatory approvals and a vote of E*Trade shareholders. The acquisition is the largest by Morgan Stanley since the financial crisis.
E*Trade stock traded up by almost 24% Thursday morning to $55.99 a share. The stock’s prior 52-week range was $34.68 to $52.35.
Morgan Stanley stock traded down by more than 3%, at $54.24 in a 52-week range of $38.76 to $56.43. The consensus 12-month price target on the stock is $61.95.