Mitsubishi UFJ Acquires 21% Stake in Morgan Stanley

Mitsubishi UFJ Financial Group, Inc. (MTU) announced Monday it closed on a $9 billion equity investment in New York-based Morgan Stanley (MS), giving the Japanese bank a 21 percent ownership stake in the investment banking firm. The much needed investment is part of a previously announced global strategic alliance, and came after Morgan Stanley experienced substantial stock declines last week due to concerns over its ability to withstand the market turmoil that has swallowed most of its peers.  News of the investment sent shares soaring over 50 percent Monday morning. “Despite a very challenging environment, MUFG and Morgan Stanley have demonstrated our mutual commitment to this strategic alliance and have revised the terms of our investment in the best interests of both companies and our shareholders,” said Nobuo Kuroyanagi, MUFG’s president and chief executive officer. Under the revised terms, which Yahoo Finance reported as “extraordinarily favorable to Morgan Stanley,” $7.8 billion of MUFGs preferred stock is convertible to Morgan Stanley common at $25.25 per share — which is more than twice Friday’s closing price — with a ten percent dividend.  MUFG also acquired $1.2 billion of non-convertable preferred stock with a 10 percent dividend. Half of the convertible preferred stock will automatically convert after one year into common stock if Morgan Stanley’s stock trades above 150 percent of the conversion price for a certain period. The other half will convert on the same basis after year two. The non-convertible preferred stock is callable after year three at 110 percent of the purchase price. As part of the final terms, the U.S. Treasury reportedly agreed to guard MUFG from further dilution if the Treasury should have to invest new equity into Morgan Stanley — a key deal-maker in MUFG’s eyes. According to a statement released Monday by Morgan Stanley, the two companies have already identified numerous areas of potential collaboration for their alliance, including corporate and investment banking, certain areas of retail banking and asset management, as well as lending activities such as corporate and project related loans. Under the agreement, MUFG will receive a Morgan Stanley Board seat and the companies will establish a Steering Committee to maximize the strategic benefits of their partnership. “Today’s investment further bolsters our strong capital position and, together with our strategic alliance, will accelerate our transition under our new bank holding company structure and help us realize opportunities created by the continuing dislocation in the financial markets,” said John J. Mack, Morgan Stanley’s chairman and chief executive officer.