Morgan Stanley (NYSE:MS) signed a definitive agreement to acquire E*TRADE Financial Corporation (NASDAQ:ETFC) from a group of shareholders for $13.1 billion on February 20, 2020. As part of the consideration, E*TRADE stockholders will receive 1.0432 Morgan Stanley shares for each E*TRADE share. At the effective time, each share of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A of E*TRADE Financial, outstanding immediately before the effective time will be converted into the right to receive one share of a newly created series of Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series M. Additionally, at the effective time, each share of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series B, par value $0.01 per share of E*TRADE Financial, will be converted into the right to receive one share of a Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series N of Morgan Stanley. The redemption prices of Series M and Series N preferred stocks are of $1,000 per share and $100,000 per share respectively. At the effective time, each outstanding time-based restricted stock unit award, performance-based restricted stock unit award, director deferred restricted stock unit award and director restricted stock award, whether vested or unvested, will vest (if unvested), and be converted into the right to receive the merger consideration as if such awards had been settled in shares of E*TRADE Financial common stock immediately prior to the effective time. As a result of the transaction, E*TRADE will become a division of Morgan Stanley. Morgan Stanley and E*TRADE estimate that, as of immediately following completion of the merger, holders of Morgan Stanley common stock as of immediately prior to the merger will hold approximately 88% and holders of E*TRADE common stock as of immediately prior to the merger will hold approximately 12% of the outstanding shares of Morgan Stanley common stock. Post the transaction, E*TRADE common stock will be delisted from the Nasdaq. The agreement may be terminated by E*TRADE Financial and Morgan Stanley by mutual agreement. Furthermore, either party may terminate the agreement if the merger has not been consummated on or before March 31, 2021, which date will be extended to June 30, 2021 under certain circumstances if required regulatory approvals have not been obtained by March 31, 2021 (such March 31, 2021 date as it may be extended). In case of termination under certain circumstances, Morgan Stanley will receive a termination fee from E*TRADE Financial equal to $375 million in cash. In addition, under specified circumstances, upon the termination of the agreement solely relating to the failure to obtain necessary clearances for the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or approval under any other applicable antitrust law, E*TRADE Financial will receive a termination fee from Morgan Stanley equal to $525 million in cash.

Mike Pizzi, Chief Executive Officer of E*TRADE, will be joining Morgan Stanley reporting to James Gorman, Chairman and Chief Executive Officer of Morgan Stanley and he will continue to run the E*TRADE business within the Morgan Stanley franchise and lead the ongoing integration effort and will join the Morgan Stanley Operating and Management Committees. In addition, one member of E*TRADE Board is expected to be added to the Morgan Stanley Board of Directors. E*TRADE brand will be retained as part of the transaction. The acquisition is subject to customary closing conditions, including regulatory approvals, most notably, the Federal Reserve and the OCC, the early termination or expiration of any applicable waiting period or periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, approval by E*TRADE shareholders and registration statement shall have been declared effective, the shares of Morgan Stanley stock to be issued shall have been approved for listing on the NYSE, subject to official notice of issuance. The transaction has been unanimously approved by the Boards of E*TRADE Financial and Morgan Stanley. As of March 30, 2020, Department of Justice's (DoJ) antitrust division approved the transaction. As of May 1, 2020, the Federal Reserve Board extended the public comment period until June 4, 2020. As of June 2, 2020, E*TRADE Financial Corporation shareholders meeting date is July 17, 2020. As of July 6, 2020, Board of E*TRADE recommended stockholders to vote in favor of the transaction. As per filing on July 17, 2020 the shareholders of E*TRADE approved the transaction in the special meeting of E*TRADE shareholders. More than 99% of votes were cast in favor of the proposal. Morgan Stanley expects the acquisition to be accretive once fully phased-in estimated cost and funding synergies are realized. The transaction is expected to increase the Firm's return on tangible common equity by more than 100 bps with fully phased-in cost and funding synergies and improve Wealth Management's pre-tax profit margin to over 30%. The transaction is also expected to be dilutive to Tangible book value per share, offset to ROTCE once estimated cost and funding synergies are realized. As of June 12, 2020, the merger may not be accretive, and may be dilutive, to Morgan Stanley's earnings per share. Morgan Stanley will maintain its strong capital position, with the Firm's common equity tier 1 ratio estimated to increase by over 30 bps at closing.

Neill Barr, Marc O. Williams, Brian Wolfe, Kyoko Takahashi Lin, Arthur J. Burke, Michael Mollerus, Randall Guynn, Zachary J. Zweihorn and Luigi L. De Ghenghi of Davis Polk & Wardwell LLP acted as the legal advisors to Morgan Stanley as part of the transaction. Stephen F. Arcano, David C. Hepp, Sven Mickisch, Joseph Penko, Edward Gonzalez, Brian Christiansen, Heather Cruz and Kenneth Schwartz of Skadden, Arps, Slate, Meagher & Flom LLP acted as legal advisor to E*TRADE Financial Corporation. Ardea Partners LP and J.P. Morgan Securities LLC acted as financial advisors and fairness opinion providers to E*TRADE Financial. Morgan Stanley acted as financial advisor to Morgan Stanley. Broadridge Corporate Issuer Solutions, Inc. and The Bank of New York Mellon acted as transfer agent to Morgan Stanley. American Stock Transfer & Trust Company, LLC acted as transfer agent to E*TRADE. Innisfree M&A Inc. acted as the proxy solicitor to E*TRADE as part of the transaction and will receive a fee expected not to exceed $25,000, plus reasonable out-of-pocket expenses, for the services rendered. For financial advisory services rendered in connection with the Merger, E*TRADE has agreed to pay J.P. Morgan a total fee in the amount equal to 62 basis points of the total consideration at closing, $10 million of which became payable upon delivery by J.P. Morgan of its opinion, and the remainder of which will become due upon the closing of the proposed merger. Based on the trading price of Morgan Stanley common stock at the close of business prior to the transaction announcement on February 20, 2020, J.P. Morgan's total fee was estimated to be approximately $81 million, of which $10 million of which became payable upon delivery of its opinion. The engagement letter between E*TRADE and Ardea provides for a transaction fee of 15 basis points of the total actual consideration to be received by the holders of E*TRADE common stock pursuant to the merger agreement, that is estimated, based on the information available as of the date of announcement, to be approximately $20 million, $1 million of which became payable upon the execution of the engagement letter, $2 million of which became payable upon the execution of the merger agreement and the remainder of which is payable contingent upon completion of the proposed merger.


Morgan Stanley (NYSE:MS) completed the acquisition of E*TRADE Financial Corporation (NASDAQ:ETFC) ("Company") from a group of shareholders on October 1, 2020. Post-closing, E*TRADE Financ