Japan's Mitsubishi UFJ Financial Group is investing $9 billion in Morgan Stanley. The two firms reached an agreement in which Mitsubishi would acquire a 21% stake in Morgan Stanley on a fully diluted basis. MUFG will acquire 9.9% of Morgan Stanley's common stock on a primary basis at a price of $25.25 per share, for a total of $3 billion. MUFG will also acquire $6 billion of perpetual non-cumulative convertible preferred stock with a 10% dividend and a conversion price of $31.25 per share.
After one year, half of the preferred stock automatically converts into common stock when Morgan Stanley's stock trades above 150% of the conversion price for a certain period and the other half converts on the same basis after year two.
Earlier today, Citigroup agreed to acquire Wachovia Corp, which was once touted as a potential bidder for Morgan Stanley. Goldman Sachs, the only other survivor among the Wall Street investment banks, has also raised $5 billion from Warren Buffet's Berkshire Hathaway.
The release issued by the two companies also said that "the two companies have agreed to pursue a global strategic alliance, with particular focus on corporate and investment banking. The firms have already identified numerous areas of collaboration, including corporate and investment banking, retail banking and asset management."
"This strategic alliance offers a powerful opportunity to accelerate Morgan Stanley's transition as a bank holding company. MUFG's investment is also a strong endorsement of Morgan Stanley's world-class global franchise and future potential," said John J. Mack, Morgan Stanley's Chairman and Chief Executive Officer.
Lazard Freres & Co. served as financial advisor to MUFG. BlackRock provided advice to MUFG on asset valuation.