JV corral

11 September 2012 By Richard Beales Follow @richardbeales1

The two Wall Street bosses were miles apart valuing the joint wealth management unit Morgan Stanley is buying from Citi. The agreed $13.5 bln valuation is a bit nearer Gorman’s number. More significantly, he now knows the price he’ll pay for the whole of Citi’s 49 pct stake.

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Morgan Stanley and Citigroup said on Sept. 11 they have reached agreement for Morgan Stanley to purchase a 14 percent stake in Morgan Stanley Smith Barney from Citi at an implied valuation of $13.5 billion for 100 percent of the wealth management joint venture.

In addition, subject to regulatory approval, the two firms agreed on the sale of Citi’s remaining 35 percent stake in MSSB at the same implied valuation no later than June 1, 2015. The next 15 percent stake sale is targeted to occur by June 1, 2013.

The two banks previously disagreed on valuation, as outlined by Citi in a regulatory filing on July 19. At the time, Citi said it believed its 49 percent stake in MSSB was worth around $11 billion, implying a $22.5 billion value for the whole JV. In its filing, Citi stated that Morgan Stanley’s valuation for the entire business was around 40 percent of Citi’s estimates, implying around a $9 billion valuation for the whole business.

As required by the agreement between the two banks, they appointed Perella Weinberg as an arbitrator to set a price for the 14 percent stake sale. The valuation unveiled on Sept. 11, however, covered the whole of Citi’s remaining stake and was negotiated between the banks, Morgan Stanley said.

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