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Eaton Vance hitches its future to Morgan Stanley in $7 billion deal

Morgan Stanley is buying Eaton Vance in a deal valued at about $7 billion.Mark Lennihan/Associated Press

Eaton Vance, the Boston-based investment firm whose roots go back to the earliest days of mutual funds, said Thursday it would be acquired by Morgan Stanley for $7 billion, capping its search for a partner with much broader customer reach.

The deal, a mix of cash and stock, values Eaton Vance at 38 percent more than its closing price on Wednesday, and will end its half-century run as a publicly traded company. The transaction, which is expected to close in the second quarter of next year, was unanimously approved by a group of two dozen executives who control the company though a special class of voting stock.


Eaton Vance chief executive Thomas E. Faust Jr. said the takeover would not lead to significant job losses among the company’s 1,900 employees, including 1,100 in Boston. The investment and sales teams will remain intact, though there will be some cuts to administrative and support staffs, he said.

With just over $500 billion in client assets, Eaton Vance manages significantly less money than industry leaders such as BlackRock Inc., which oversees $7 trillion, or Fidelity Investments, at $3 trillion. The company also competes with many smaller and more specialized firms, leaving it in an awkward middle zone, according to Faust.

“The position of an independent asset manager of our size [without more distribution] feels increasingly vulnerable,” he said.

Morgan Stanley, also a midsize asset manager, is already Eaton Vance’s largest distributor. Its investment management unit, with $665 billion in assets, plans to offer Eaton Vance funds internationally — the Boston company has a minimal overseas presence — as well as through its massive army of more than 15,000 advisers.

The acquisition is the latest by Morgan Stanley chief executive James Gorman aimed at making the company more like fund-focused Fidelity or Vanguard Group while cutting its reliance on investment banking and trading, which is a more volatile and capital-intensive business. The New York company announced the Eaton Vance deal just six days after completing its $11 billion takeover of discount broker E*trade Financial Corp.


Morgan Stanley’s purchase will boost client assets at its investment management unit to $1.2 trillion and the unit’s annual revenue to more than $5 billion, narrowing the gap with rival Goldman Sachs, which has been beefing up its larger asset management unit.

Eaton Vance itself has expanded by buying smaller firms, including Parametric Portfolio Associates, which accounts for 60 percent of the company’s assets and about 30 percent of revenue, and Calvert Research & Management, which focuses on investing through the lens of environmental, social, and corporate governance issues.

Consolidation has been reshaping the money management industry for a couple decades, even as new investment shops come onto the scene.

Giant companies like BlackRock and State Street Corp. have expanded through deal-making and internal growth, and midsize players such as Janus Capital Group Inc. and Henderson Group have combined in a bid to keep up. But size isn’t all that matters, according to Ben Phillips, principal at Deloitte-owned Casey Quirk, a consulting firm specializing in money management.

“What’s driving deals is a realization among asset managers that they all look pretty much the same, and that’s not helping when competing for assets is more fierce,” said Phillips, who expects more tie-ups between firms. “Getting access to new skill sets . . . new markets, and new technologies will characterize a lot of the transactions I’d expect, regardless of whether the result is a giant or not.”


Other Boston asset managers, including John Hancock Investment Management, Putnam Investments, and Pioneer Investments, have been gobbled up over the past 15 years.

Shareholders of Eaton Vance will receive $28.25 a share in cash and 0.5833 of Morgan Stanley common stock, or about $56.50 a share. The split is about 50-50 between cash and stock, though that will vary based on the price of Morgan Stanley’s stock down the road. Eaton Vance shareholders will be able to choose all cash or all stock, subject to a proration and adjustment mechanism.

Eaton Vance will pay its shareholders a special cash dividend of $4.25 a share before the transaction closes, which is expected in the second quarter of next. The company’s stock soared 48 percent to close at $60.65. Morgan Stanley inched up less than 1 percent to $49

The deal signals a big payday for top executives. Faust owns nearly 18 percent of Eaton Vance’s voting shares and 3.4 percent of its non-voting stock. He has been chairman and CEO of Eaton Vance since 2007.

Eaton Vance was created in 1979 by the merger of Eaton & Howard and Vance, Sanders & Co. Eaton & Howard launched in 1924, the same year that employees of a predecessor firm of Vance Sanders started the first mutual fund, Massachusetts Investors Trust.

In recent years, Eaton Vance has been known locally for being the presenting sponsor of the Boston Pops July 4th concert and fireworks. The company will continue its contract through 2022, according to the Boston Symphony Orchestra.


Faust, 62, said he would continue to run Eaton Vance and assume a senior role at Morgan Stanley Investment Management when the takeover is completed. The deal with Morgan Stanley isn’t predicated on slashing expenses to juice profits, he said. Instead, he and Gorman believe the combination of Eaton Vance’s products and Morgan Stanley’s sales force will increase revenue.

“If this works the way we intend, we will need more people,” Faust said.

Shirley Leung of the Globe Staff contributed to this report.

Larry Edelman can be reached at larry.edelman@globe.com. Follow him on Twitter @GlobeNewsEd.