MORGAN Stanley has agreed to change the terms of its US$9 billion investment from Mitsubishi UFJ Financial Group Inc, providing the Japanese bank with preferred stock that pays a 10 percent dividend instead of common stock.
Mitsubishi UFJ, Japan's biggest lender, will get 21 percent of the New York-based company as previously agreed, the two firms said yesterday. The terms were renegotiated because Morgan Stanley's stock price fell 60 percent last week, Bloomberg News reported.
Morgan Stanley Chief Executive Officer John Mack's steps to shore up confidence by turning the firm into a bank holding company and finding an investor failed as the stock sank to a 13-year low on Friday. The stock closed at US$9.68, 62 percent below the price at which Mitsubishi UFJ had agreed to pay for the company's common stock, undermining confidence that the transaction would close today as planned.
''The global news isn't good yet and investors will continue to question and focus on renegotiating deals where they can,'' said Tom Murphy, managing partner at Family Office Research & Management Ltd in Sydney. ''Japanese capital will be a significant player in this crisis, and it won't be shy capital when it comes to deal-making.''
Under the revised deal, Mitsubishi UFJ will get US$7.8 billion of convertible preferred stock that will convert to stock at a price of US$25.25 per share, down from the previous price of US$31.25. The rest of the investment will be US$1.2 billion of non-convertible preferred stock. Both classes of stock pay a 10 percent dividend.
Treasury Secretary Henry Paulson said on Friday that the government would buy equity in a ''broad array'' of financial institutions to restore market stability and ensure economic growth.
Federal officials assured Mitsubishi UFJ late Sunday that its investment in Morgan Stanley would be protected, the New York Times reported. Brookly McLaughlin, a spokeswoman for the United States Treasury, declined to comment.
George Soros, the billionaire chairman of Soros Fund Management, wrote in the Financial Times yesterday that the US government should buy preferred stock in Morgan Stanley that converts to shares at a price above what Mitsubishi UFJ agreed to pay.
Closing the investment from Mitsubishi UFJ would be ''critical'' for Morgan Stanley to keep its current credit ratings, Moody's Investors Service said yesterday.