October 12, 2020 BARRON’S 11
invests in small- and mid-cap stocks. All
could benefit from having their offerings
integrated into Morgan Stanley’s powerful
international distribution network. Eaton
Vance is also strong in domestic distribu-
tion to intermediaries, such as financial
advisors, and owns an in-house advisory
firm, Eaton Vance Investment Counsel.
The acquisition is expected to close in
mid-2021. For each Eaton Vance share, an
investor would get 0.5833 of a Morgan
Stanley share, plus $28.25 in cash. Based
on Morgan Stanley’s recent stock price, this
totals $56.50. Eaton Vance holders would
also get a one-time special cash dividend
of $4.25 per share from that company, paid
before the closing.
On a conference call, CEO James Gor-
man expressed hope that the deal would
boost Morgan Stanley’s valuation. “Our
competitor Charles Schwab [SCHW] is
trading at 20 times earnings, and we’re
trading at 10 times earnings...If we traded
at 14 to 15 times earnings, this stock would
be a hundred bucks.”
On Thursday, Eaton Vance, one of the
few traditional money managers showing
organic growth, closed at $60.65—almost
perfectly matching the deal price, plus the
special dividend—up from a preannounce-
ment $40.94. Morgan Stanley ended at
$49.18, virtually unchanged.
Industry consolidation is being pro-
pelled by pressure that active money man-
agers are under to lower fees, at a time
when many have underperformed passive
investments, leading investors to withdraw
assets. Bigger companies can trim expenses
through economies of scale.
Says Ali Dibadj, head of finance and
strategy at AllianceBernstein, an investment
manager 60% owned by Equitable Hold-
ings (EQH): “There will be more big deals
in the asset-management industry, as some
firms throw in the towel on delivering alpha
[outperformance] for clients.” (For a look at
AllianceBernstein itself, see page 27.)
Recently, Trian Partners, the activist
investor, took 9.9% stakes in both Invesco
(IVZ) and Janus Henderson Group
(JHG), with an eye to creating an asset-
management giant. In 2019, Trian CEO
Nelson Peltz took a stake in Legg Mason.
In 2020, Franklin Resources (BEN)
bought Legg, giving Peltz a 55% return on
his investment.
What firms might be the next targets?
Rob Lee, an analyst at KBW, thinks that
speculation might center on BrightSphere
Investment Group (BSIG) and Waddell &
Reed Financial (WDR). Shares of both
asset managers were up substantially on
the Morgan Stanley news. Neither Bright-
Sphere nor Waddell returned requests for
comment.B
EatonVance
DealPresages
MoreM&Afor
AssetManagers
A wave of consolidation is likely as
firms come under pressure to cut fees
and boost investment performance
M
ore consolidation and more
reliance on fees. Those two
Wall Street trends took the
spotlight this past Thursday
when Morgan Stanley said that it would
pay $7 billion for Eaton Vance.
The deal, coming on the heels of the Wall
Street giant’s purchase of discount broker
E*Trade, marks another step in its retreat
from its somewhat swashbuckling pre-fi-
nancial-crisis persona, when it made much
of its money from risky trading. And it fits
in with a wave of consolidation reshaping
the money-management industry.
Combined, Morgan Stanley (ticker: MS)
and Eaton Vance (EV) would generate $
billion in annual pro forma net revenue,
much of it from steady fee income for over-
seeing $1.2 trillion in assets and providing
associated services.
Eaton Vance has a strong lineup of
mutual funds offered under its own name,
many focused on fixed income. It also
owns the Calvert Research & Management
funds, which specialize in sustainable
investments; Parametric, which provides
customized indexes and other tools for
investors; and Atlanta Capital, a firm that
By LESLIE P. NORTON
CEO James
Gorman hopes
the deal will boost
Morgan Stanley’s
valuation.
Michael Nagle/Bloomberg
- Jim Cullen, Chairman & CEO
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