January 4, 2019

Breakingviews: Morgan Stanley’s virtual mega-bank model pays off

by Breakingviews.

Morgan Stanley’s symbiotic relationship with Mitsubishi UFJ Financial Group is paying off big time. The Wall Street firm is funding a whopping $33.5 billion loan for Bristol-Myers Squibb’s purchase of Celgene through its decade-old alliance with the Japanese lender. Acting like one bank gives Morgan Stanley bragging rights and a chance to play alongside rivals with much bigger balance sheets.

It’s not the biggest bridge loan ever made for a takeover. That record remains with Verizon Communications, which borrowed $61 billion in 2013 to buy Vodafone out of their U.S. cell phone joint venture. Several other deals have been larger, too.

But each of them required three or four banks to stump up the cash. Typically $20 billion is the most any one institution has been willing to commit – as Barclays and Goldman Sachs did as part of the $49 billion loan to finance CVS Health’s acquisition of Aetna in 2017. The Bristol-Myers loan, on the other hand, is shared just between Morgan Stanley and MUFG, as the Japanese bank is also referred to. It’s the biggest credit they’ve ever extended together.

Because of their long-running partnership, the two institutions can effectively act as one bank. That confers plenty of benefits. In this case, it limited those in the know about the impending Celgene deal: only fellow merger advisers Evercore and Dylan were clued in on the action, rather than a slew of loan syndicate desks.

MUFG, meanwhile, got access to a transaction it could never have played a big part in otherwise. And the loan pays a higher rate of interest than comparable credits in its home market.

Having the backing of Japanese money probably secured Morgan Stanley the lead adviser role, avoiding the need to share the limelight – and the lion’s share of the fees – with a competitor.

That’s crucial for Morgan Stanley to compete for M&A business with mega-banks like JPMorgan, Bank of America and Citigroup and their trillion-dollar-plus balance sheets. Sure, M&A bigwigs pride themselves on winning deals on the quality of their advice alone. But being able to dip into some deep pockets, especially without having to endure the pain a full-blown merger usually entails, isn’t to be sniffed at.


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