Updated from 8:29 a.m. EDTMitsubishi UFJ Financial ( MTU) and Morgan Stanley ( MS) on Monday closed a sweetened deal that gives Japan's largest bank a 21% ownership stake in the struggling Wall Street firm. Mitsubishi acquired $7.8 billion of perpetual non-cumulative convertible preferred stock with a 10% dividend and a conversion price of $25.25 per share, and $1.2 billion of perpetual non-cumulative non-convertible preferred stock with a 10% dividend. The deal's new cost is down from an initially negotiated price of $31.25 as Morgan Stanley's shares more than halved last week, reducing the company's market value to just $10.3 billion.
Morgan Stanley and Mitsubishi said the deal will allow for collaboration in numerous areas, including corporate and investment banking, certain areas of retail banking and asset management and lending activities such as corporate and project related loans. "Despite a very challenging environment, MUFG and Morgan Stanley have demonstrated our mutual commitment to this strategic alliance and have revised the terms of our investment in the best interests of both companies and our shareholders," MUFG President and CEO Nobuo Kuroyanagi said in the statement. "We are now looking forward to working with Morgan Stanley to deliver the significant strategic benefits that we believe our alliance will bring." Half of the convertible preferred stock automatically converts after one year into common stock when Morgan Stanley's stock trades above 150% of the conversion price for a certain period and the other half converts on the same basis after year two. The non-convertible preferred stock is callable after year three at 110% of the purchase price. The U.S. government was involved with the talks but didn't contemplating a direct investment alongside MUFG, the Wall Street Journal reported, citing one person familiar with the talks.