[ by Melanie Gretchen ]

Morgan Stanley has emerged the winner in negotations of the purchase price of its additional 14% stake in the brokerage joint venture Morgan Stanley Smith Barney.   As the bank prepared to buy-out the entire JV with Citigroup, the JV has been valued at $13.5 billion, after Morgan Stanley valued the JV at $9 billion, while Citi valued it at $22.5 billion.

Morgan Stanley and Citi first agreed to form MSSB in June 2009, which included Morgan Stanley's Global Wealth Management (GWM) Group and Citigroup's Smith Barney, Quilter in the UK, and Smith Barney Australia.

Terms included:

• Morgan Stanley exchanged 100% of its Global Wealth Management business for 51% stake in the JV
• Citigroup exchanged 100% of its Smith Barney, Smith Barney Australia, and Quilter units for a 49% interest in the JV and paid $2.75 billion to Morgan Stanley
• After 3 years, Morgan Stanley would have the option to purchase additional interest in the JV from Citigroup.

In March 2012, Morgan Stanley received the Federal Reserve's approval to purchase an additional 14% stake in MSSB and in June issued a notice that initiated a 90-day process to determine the purchase price.

Next Steps

• Morgan Stanley will be paying about $1.9 billion for additional share in the JV, while no premium is required to be paid for the transfer of roughly $5.5 billion of deposits.  Currently, the company holds 51% stake in the JV
• The company will be acquiring the remaining 35% stake by June 1, 2015 at the same valuation of $13.5 billion (an earlier agreement set the deadline that the company was supposed to purchase the entire JV by June 2014, thus Morgan Stanley now has more time)
• Morgan Stanley will be acquiring the next 15% stake by June 1, 2013, which is still subject to regulatory consent.  Moreover, the company will not be required to pay any premium for the transfer of deposits.

For further details, go to [Zacks, 9/12/12].