Japan’s largest bank – Mitsubishi UFJ Financial Group [MUFG] has reached an agreement to invest up to 900 billion yen ($8.4 billion) for a stake of up to 20%, or approx. $31.25 per Morgan Stanley (MS) share as the U.S. securities firm seeks capital injection following the collapse of Lehman Brothers (LEH).
The Japanese Financial Group is expected to make a decision on the exact price it will pay for the stake once it has completed due diligence. Both co.’s have entered into a nonbinding letter of intent which would provide for Morgan Stanley to sell to MUFG, between 10%-20% of the total outstanding common stock of the former investment bank on a fully diluted basis, at a price based upon book value as a result of satisfactory due diligence.
MUFG said in a statement that it would have a spot on Morgan Stanley’s board as a result of the deal. The acquisition will take place “as soon as practicable,” Mitsubishi UFJ said.
The announcement comes on the heels of late Sunday’s extraordinary decision by The Federal Reserve to convert both Morgan Stanley and Goldman Sachs (GS) from independent investment houses into bank holding companies.
Morgan Stanley had been in talks with Wachovia (WB), America’s fourth largest bank, as well as China Investment Corporation, the Chinese sovereign wealth fund, which acquired a 9.9% stake in the New York-based securities firm in December of last year. At the time, that stake was worth about $5 billion. A deal with Japan’s Mitsubishi UFJ will allow Morgan Stanley to keep its independent status following the Wall Street upheaval of the past two weeks.
Separately: Earlier today, Japan’s largest brokerage group, Nomura Holdings Inc., confirmed that the brokerage house would be buying Lehman Brothers’ franchise in the Asia Pacific region including Japan and Australia for $225 million. Kenichi Watanabe, Nomura’s President and CEO, said:
The businesses we are acquiring are hugely successful with excellent management and staff. This is a once in a generation opportunity and we are delighted to be able to partner with Lehman Brothers’ talented people to create one of the biggest independent global financial institutions that provides world-class investment banking services to clients across the globe.
The move came after British bank Barclays PLC declined to buy the Wall Street firm in its entirety.