Morgan Stanley, Mitsubishi UFJ Renegotiating Terms (Update2)
Written by Writer on Monday, October 13th, 2008
Morgan Stanley, Mitsubishi UFJ Renegotiating Terms (Update2)
By Christine Harper (Bloomberg) — Morgan Stanley is in talks with Mitsubishi UFJ Financial Group Inc. about altering the terms of the Japanese bank’s pending $9 billion infusion into the Wall Street firm after its stock sank 60 percent last week, said a person familiar with the matter.
Mitsubishi, Japan’s biggest lender, agreed on Sept. 29 to pay $6 billion for Morgan Stanley convertible preferred shares and $3 billion for common stock at $25.25 apiece. Now the companies are discussing eliminating the common stock portion and using preferred stock instead, said the person, who declined to be named because the talks are private and terms may change.
Morgan Stanley Chief Executive Officer John Mack’s steps to shore up confidence by turning the firm into a bank holding company and finding an investor failed as the stock sank to a 13-year low on Oct. 10. Mack, 63, may reduce the conversion price of the preferred shares sold to Mitsubishi UFJ by as much as 36 percent, the person said.
“The global news isn’t good yet, and investors will continue to question and focus on renegotiating deals where they can,” said Tom Murphy, managing partner at Family Office Research & Management Ltd. in Sydney. “Japanese capital will be a significant player in this crisis, and it won’t be shy capital when it comes to deal-making.”
Morgan Stanley is weighing reducing the conversion price of the preferred shares from $31.25 each to something in the range of $20 to $25, the person said. The U.S. firm expects to pay a 10 percent dividend, as previously negotiated.
`I Would be Angry’
The U.S. government has assured Mitsubishi UFJ that it’s investment in Morgan Stanley would be protected, the New York Times reported, citing people it didn’t identify. The pledge, made to keep Mitsubishi UFJ from walking away, may serve as a model for future transactions, the report said.
Spokespeople for Morgan Stanley didn’t reply to calls seeking comment. Takashi Takeuchi, a spokesman for Tokyo-based Mitsubishi UFJ, declined to comment.
Morgan Stanley shares closed at $9.68 on Oct. 10, 62 percent below the price at which Mitsubishi UFJ had agreed to pay for the company’s common stock.
“I would be angry if I were a Mitsubishi shareholder and got the same amount of Morgan Stanley when the stock has been cut in value,” Kenneth Crawford, a senior portfolio manager a Argent Capital Management in St. Louis, Missouri, said Oct. 10.
The U.S. Treasury isn’t planning to buy a stake in Morgan Stanley at this point in the negotiations with Mitsubishi UFJ, said the person. Treasury Secretary Henry Paulson said Oct. 10 that the government will buy equity in a “broad array” of financial institutions to restore market stability and ensure economic growth.
Soros’s Advice
Brookly McLaughlin, a spokeswoman for the U.S. Treasury, declined to comment. The New York Times and the Wall Street Journal reported earlier today that the transaction’s terms were being renegotiated.
George Soros, the billionaire chairman of Soros Fund Management, wrote in the Financial Times today that the U.S. government should buy preferred stock in Morgan Stanley that converts to shares at a price above what Mitsubishi UFJ agreed to pay.
Closing the investment from Mitsubishi UFJ will be “critical” for Morgan Stanley to keep its current credit ratings, Moody’s Investors Service said in a statement on Oct. 9, when it placed Morgan Stanley’s A1 long-term debt rating on review for downgrade.
China Sovereign Fund
Mitsubishi UFJ is the second overseas investor to take a significant stake in Morgan Stanley. In December, China Investment Corp. paid $5.58 billion for equity units in Morgan Stanley that pay 9 percent a year and convert to common stock in 2010, granting CIC about 10 percent of Morgan Stanley.
Moody’s in August cut Morgan Stanley’s long-term credit rating from Aa3. At A1, the firm now has the fifth-highest investment grade rating.
“Mitsubishi is making a good investment in Morgan Stanley,” Tim Ghriskey, chief investment officer of Solaris Asset Management LLC, said in an interview on Oct. 10. “If this firm can continue, and it certainly should continue, it can produce very steady profits.”
To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net
