The Dean Witter, Discover & Co.-Morgan Stanley Group deal is a yawner for the institutional money management business.
Industry observers predict the $10.2 billion transaction won't increase the firms' market share in either the defined benefit or defined contribution plan area.
Granted, the resulting company will have $271 billion under management. But Morgan Stanley already is a major institutional money manager, and Dean Witter doesn't add anything to that position, noted Brad Hearsh, managing director of PaineWebber Inc., New York.
Before the deal, Morgan Stanley had $180 billion in assets housed in its subsidiaries Morgan Stanley Asset Management, New York; Van Kampen American Capital Management, Oakbrook Terrace, Ill.; and Miller, Anderson & Sherrerd, Philadelphia.
Mr. Hearsh believes Morgan Stanley pursued the deal because executives there "want the retail asset-gathering business."
Or as Bruce McEver, president of Berkshire Capital Corp., New York, put it: "They've got all the institutional (assets) they need, with Miller Anderson and Van Kampen."
Neither is a major player on the defined contribution side, although shortly before the deal was announced, Morgan Stanley Asset Management revealed plans to offer to big 401(k) plans low-cost, institutionally priced mutual funds structured along the lines of its separate account strategies (Pensions & Investments, Feb. 3).
Ruth Hughes-Guden, the principal hired last year to head MSAM's defined contribution marketing effort, is expected to continue to expand the firm's push into the large plan market. Of the total $104 billion currently under management at MSAM, only $3.5 billion is from defined contribution plans.
Ms. Hughes-Guden said through a spokesman that she had no comment on the merger. The spokesman noted Dean Witter's limited defined contribution offerings don't overlap with Morgan Stanley's. Dean Witter has only $1.5 billion in 401(k) assets and total defined contribution assets of $4.5 billion, according to the 1996 401(k) Provider Directory.
Dean Witter executives did not return repeated phone inquiries.
Donald Leight, head of Donald Leight Consulting, Menlo Park, Calif., a financial services consulting firm, said the combination "doesn't take (Morgan Stanley) a lot further" toward its goal of becoming a major force in the market.
"It gives them (MSAM) access to the Dean Witter brokers, but that is a channel aimed specifically at the small end of the market. It doesn't help them solve the problem of accessing the larger plans," Mr. Leight said.
"The positive way of looking at it is that Morgan Stanley has added a new distribution channel to a new market segment. The problem is that they have to manage it. It will not manage itself," he said.
The two companies will merge into a new company - Morgan Stanley, Dean Witter, Discover & Co. Dean Witter shareholders will own 55% of the company; Morgan Stanley shareholders will own the remaining 45%. The stock swap, valued at $10.2 billion, is expected to be completed in mid-1997.
Altogether, the post-merger Morgan Dean will have approximately $271 billion in assets under management, including $146 billion in proprietary mutual funds from Morgan Stanley and Dean Witter families.
While praising the "Wall Street to Main Street" connection the merger will achieve on the brokerage side, industry observers were underwhelmed by the institutional implications. Dean Witter's strong retail orientation makes it unlikely the merger will be much help to Morgan Stanley's efforts, the observers said.
"I don't consider them to be a major player in the 401(k) market, but they have some product," said Mr. Hearsh. However, he added "they're not a name brand."
Industry sources said Dean Witter's sales efforts have been confined to small plans through its retail brokerage network.
But David W. Huntley, principal at HR Investment Consultants, Baltimore, said Dean Witter does have a "state-of-the-art" record-keeping and administration facility capable of handling larger plans.
"They have all the right toys and they are a large mutual fund player and have utilized that," he said.
"Dean Witter brings its marketing ability and large distribution force and some nice record-keeping operations, better than their position in the 401(k) business would indicate," he added.
