Morgan Stanley has agreed to acquire E*TRADE Financial Corp. in an all-stock megamerger valued at about $13 billion.
After months of uncertainty for the online brokerage, Morgan Stanley announced Feb. 20 that it will grant E*TRADE stockholders 1.0432 Morgan Stanley shares for each E*TRADE share they hold, representing a per-share consideration of $58.74 based on Morgan Stanley's closing price Feb. 19.
In acquiring E*TRADE, Morgan Stanley is significantly expanding its footprint in the retail wealth management business. E*TRADE has more than 5.2 million client accounts with more than $360 billion of assets, which will be combined with Morgan Stanley's 3 million client relationships that have more than $2.7 trillion of client assets.
"E*TRADE represents an extraordinary growth opportunity for our wealth management business and a leap forward in our wealth management strategy," Morgan Stanley Chairman and CEO James Gorman said in a statement. "The combination adds an iconic brand in the direct-to-consumer channel to our leading adviser-driven model, while also creating a premier workplace wealth provider for corporations and their employees."
The pending deal will put an end to long-standing speculation across Wall Street about whether E*TRADE is on the market.
Analysts most recently began to wonder about E*TRADE's path forward in the fall of 2019 when the company followed its peers' leads in eliminating commission fees, a move that would have hit about $75 million of the company's operating results in the second quarter of 2019. That sense of limbo was exacerbated in November 2019 when E*TRADE's largest rival, Charles Schwab Corp., agreed to acquire TD Ameritrade Holding Corp. for about $26 billion.
As part of the deal, E*TRADE CEO Mike Pizzi will join Morgan Stanley while staying on to run the E*TRADE business. Morgan Stanley is also inviting one of E*TRADE's independent directors to join its board, Gorman said in a statement.
Morgan Stanley expects the deal to result in cost savings of about $400 million, largely as a result of combining the two companies' bank entities, technology upgrades and sharing corporate services.
The deal is expected to close in the fourth quarter.