CITIGROUP yesterday agreed to slash the value of its brokerage unit, allowing joint owner Morgan Stanley to buy it out for a fraction of the value Citi hoped for.
Citi had valued its 49 per cent stake in Morgan Stanley Smith Barney (MSSB) at $11.3bn (£7bn), but the total valuation of $13.5bn puts its share’s worth at just $6.4bn – a major victory for the buyers.
The joint venture was established in 2009 in the wake of the financial crisis, with Morgan Stanley always expecting to buy the other stake and take full control of the brokerage.
The deal will see Morgan Stanley buy another 14 per cent of MSSB now, and Citigroup’s remaining 35 per cent stake by 1 June 2015.
Before the deal was struck Morgan Stanley had valued the other share of the brokerage at $9bn, reflecting its weak profits.
Meanwhile Citigroup had hoped to play up the joint venture’s better longer-term prospects.
The two had taken the disagreement to independent arbitrators, but yesterday said they had come to the agreement themselves.
Morgan Stanley boss James Gorman called the deal a “mutually beneficial agreement” that “gives both parties certainty and transparency on price and timing”.
Citigroup’s chief executive Vikram Pandit said “as we have shown, the more we put the past behind us, the more we can focus on our future, which is in the core businesses in Citicorp”.
City A.M. Reporter