The Morgan Stanley - Dean Witter Merger

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Case Details:

Case Code : BSTR209
Case Length : 19 Pages
Pages Period : 1997-2005
Organization : Morgan Stanley & Company; Dean Witter, Discover & Company
Pub Date : 2006
Teaching Note :Not Available
Countries : India
Industry : Investment Banking and Financial Services

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Troubles Begin

In the third quarter of 2000, for the first time since the merger, Morgan Stanley Dean Witter missed the earnings estimates for two consecutive quarters. The reasons were many including lack of good IPOs and debt issues and the NASDAQ falling by 45%. According to the analysts, the US economy had started slowing down in 2000...

Cultural Differences Persist

Purcell did not consider that cultural differences could be a major hindrance to the success of the merger. After the merger was announced, he said, "I think it's a mistake to spend too much time agonizing over cultural differences. They do exist, and when two companies merge, you've got to be aware of them and deal with them.

An important part of leadership is simply picking the right people and then giving them the freedom they need to run our various businesses. To do that, you've got to make sure you establish a great deal of trust and mutual respect." Purcell's belief notwithstanding, there were significant cultural differences between the two companies.

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The Slow Down

In 2001, the US economy was witnessing a major slowdown. The market for IPOs and mergers and acquisitions dropped considerably compared to 2000. Globally, the M&A activity was down by 51% to US$ 918 billion compared to US$ 1891 billion in 2000. The IPO activity also witnessed a downturn by 57% with 91 IPOs raising US$ 41.25 billion in 2001 against 441 IPOs raising US$ 108.15 billion in 2000...

Governance Problems

While Morgan Stanley was performing badly in the early 2000s, Purcell concentrated on strengthening his position in the company. When Morgan Stanley's loyalists like Fisher retired from the board, Purcell brought in several of his old associates and friends from Sears and the erstwhile Dean Witter Discover. After the internal power struggle, in January 2001, Mack left amidst rumors that his departure had been forced by Purcell with the support of the company's board. In the next couple of years, Morgan Stanley became involved in several legal issues and under Purcell's reign, it became one of the least compliant securities firms (Refer to Table III for details of some of the legal problems the company faced).

The Challenges

Mack had several challenges ahead of him. On the challenges he faced, Fortune wrote, "So his top priority must be to resolve the long-festering culture clash - dating from the 1997 Morgan-Dean Witter merger - that contributed to the downfall of predecessor Phil Purcell. He also needs to revive several important operations, including a stagnant Discover card business, a disappointing brokerage arm, and a lagging asset-management unit..."


Exhibit I: Morgan Stanley Dean Witter - Top Management (1997)
Exhibit II: Morgan Stanley -- Financial Performance (1997-2000)
Exhibit III: Morgan Stanley - Share Price Chart (1997-2000)
Exhibit IV: Morgan Stanley -- Financial Performance (2001-05)
Exhibit V: Morgan Stanley - Share Price Chart (2000-2005)
Exhibit VI: Morgan Stanley - Board of Directors (2005)

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