MUFG invests $9 billion in Morgan Stanley on new terms

Written by Writer on Tuesday, October 14th, 2008

MUFG invests $9 billion in Morgan Stanley on new terms

Mitsubishi UFJ Financial Group Inc. said Monday it has bought a 21 percent stake on a fully diluted basis in U.S. investment bank Morgan Stanley for $9 billion after making revisions to the terms of the acquisition.

The new terms allowed the largest Japanese banking group to make the entire investment in the purchase of only preferred shares in Morgan Stanley, compared with a previous agreement that called for the purchase of both preferred and common shares.

MUFG renegotiated the terms of the deal, which helped save Morgan from going bankrupt, on the back of a plunge in the share price of the major U.S. brokerage. The stock plunge could have caused huge unrealized losses at MUFG if it implemented its planned investment based on the initial deal.

Morgan’s share price plummeted on the New York Stock Exchange amid the current financial crisis, dwindling to $9.68 per share Friday, less than half its value as of late September when the two financial firms clinched the $9 billion deal.

On Sept. 29, MUFG agreed to buy $3 billion worth of common shares in Morgan for $25.25 per share, and invest an additional $6 billion through the purchase of preferred shares that can be later converted into common shares.

Under the new agreement with Morgan, MUFG said it has spent $7.8 billion of the $9 billion investment to purchase convertible preferred shares and the remainder for acquiring nonconvertible preferred shares.

The new terms also lower the price at which preferred shares can be converted into common stock to $25.25, down from $31.25 in September’s agreement.