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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"The combination of Morgan Stanley and Dean Witter, Discover may be as close to an ideal merger as there is, it is based on powerful franchises, high profitability and opportunities for accelerated growth." 1

- Philip J. Purcell, 1997.

"This is the last nail in the coffin on the failed vision of the financial supermarket, Dean Witter and Morgan Stanley, these pieces never fit together and stapling them together wasn't the answer." 2

- Jeffrey A. Sonnenfeld, Associate Dean, Yale School of Management, 2005.

A Mega Merger

On June 20, 2005, Morgan Stanley & Company (Morgan Stanley),3 one of the world's largest diversified financial services companies, announced that John Mack (Mack) would rejoin as Chairman and CEO of the company.

Mack was brought back on the demand of employees and institutional investors after Philip J Purcell (Purcell), the erstwhile CEO and Chairman of the company, announced his retirement on June 13, 2005. The reasons for Purcell's exit were the widely publicized governance issues and his failure to reap the full benefits of the much hyped merger between Morgan Stanley and Dean Witter, Discover & Company (Dean Witter). On Mack's return, BusinessWeek said, "Mack's return to Morgan Stanley would mark one of the greatest comebacks in Wall Street history."4 The merger between Morgan Stanley and Dean Witter was announced in February 1997 and the entire exercise was completed on May 31, 1997, to form Morgan Stanley, Dean Witter, Discover & Company (Morgan Stanley Dean Witter).

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This merger was the first such in the global financial services industry. The merged entity was a market leader in securities, asset management, and credit services, had a market capitalization of US$ 21 billion and assets under management at US$ 270 billion in mid-1997. As per the agreement, one share of Morgan Stanley was exchanged for 1.65 shares of Dean Witter.

The merged entity was expected to benefit significantly since Morgan Stanley had an established range of corporate finance & investment banking products while Dean Witter had a strong distribution network. Morgan Stanley Dean Witter was to offer a range of products and services to clients at a low cost.

The merger was expected to bring in revenues from businesses such as retail brokerage, asset management, and credit cards.

Purcell from Dean Witter assumed charge as CEO of the merged entity, while Mack from Morgan Stanley was the President and Chief Operating Officer.

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1] "Dean Witter, Morgan Stanley Announce Merger," Mississippi Business Journal, February 10, 1997.

2] Jenny Anderson, "Morgan Stanley's Choices: New Direction or Better Execution," The New York Times, June 14, 2005.

3] Morgan Stanley operates through 600 offices in 28 countries across the world. It has several subsidiaries and affiliates and provides services to clients and customers, including individuals, corporates, financial institutions, and also governments. The business segments of Morgan Stanley include Institutional Securities, Individual Investor Group, Investment Management, and Credit Services.

4] Emily Thornton, "Morgan and Mack: Getting Closer," BusinessWeek Online June 27, 2005.


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