Barron's - USA (2020-10-12)

(Antfer) #1

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


For further information, please contact Schafer Cullen Capital Management


212.644.1800 • [email protected] • schafer-cullen.com


Schafer Cullen Capital Management is an independent investment advisor registered under the Investment


Advisers Act of 1940. This information should not be used as the primary basis for any investment decision


nor, should it be construed as advice to meet a particular investment need. It should not be assumed that any


security transaction, holding or sector discussed has been orwill be profitable, or that future recommendations


or decisions we make will be profitable or equal the investment performance discussed herein. A list of all


recommendations made by the Adviser in this strategy is available upon request for the 12 months prior to the


date of this report.


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“At the end of the day, the message is


clear. Be disciplined about price, don’t


overreact to headline news and be a


long-term investor.”

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