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Morgan Stanley Plans to Complete Discover Spinoff This Month

Reuters
Friday, 1 Jun 2007 | 1:31 PM ET

Morgan Stanley plans to complete its previously announced Discover Financial Services spin-off on June 30, according to a regulatory filing, ending the U.S. investment bank's involvement in credit cards and payment systems.

Morgan Stanley, which intends to focus on securities trading, investment banking and money management, also said the U.S. Internal Revenue Service indicated the distribution of Discover shares would not be subject to federal income taxes.

The investment bank expects a limited "when issued" trading market for Discover common stock to begin on or about the week of June 11. Regular trades would start the first trading day after the distribution.

Last December Morgan Stanley announced it would issue 100 percent of Discover to its shareholders in a tax-free spin-off, sometime in its fiscal third quarter. The new stock will be distributed to Morgan shareholders of record on June 18.

Discover, in the amended filing, did not assign a value for the shares.

Morgan Stanley stock rose moderately Friday.

Credit card and electronic payments company Discover, based in Riverwoods, Ill., earned $1.89 a share last year and 42 cents a share for the quarter ended Feb. 28. Discover reported $5.43 billion in total stockholder's equity at the end of February, according to the filing.

Morgan Stanley last month disclosed it would distribute one Discover share for every two Morgan shares held. Based on that ratio, there would be about 529 million outstanding shares.

The move is intended to boost the market value of both companies by letting Morgan Stanley focus on the securities business and by giving Discover independence and a currency it can use to expand its card and payment network businesses.

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