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Morgan Stanley to Buy 14% Stake in Smith Barney

CNBC.com
Thursday, 31 May 2012 | 9:04 AM ET

Morgan Stanley advised Citigroup on Thursday of its intention to exercise the right to purchase an additional 14 percent stake in Morgan Stanley Smith Barney.

Morgan Stanley currently owns 51 percent of Morgan Stanley Smith Barney.

Morgan Stanley’s decision to exercise its option to buy the additional stake from Citi means the two sides will hire a third-party negotiator to determine the fair market value of that stake.

The two firms value the stake very differently. A Securities and Exchange Commission filing by Citi puts the value for the whole brokerage unit at $20 billion, while analysts estimate Morgan Stanley values it at $13 billion to $16 billion.

A third party will determine a fair market value for the 14 percent stake and it is expected that the price will be agreed upon by September.

A person close to the situation said that no negotiations or offers have been made.

Morgan Stanley, which said it will take up to 90 days to determine pricing, is allowed to buy the stake as of June 1.

After the cash transaction is completed, Morgan Stanley will hold 65 percent of the joint venture. It then has the option to buy another 15 percent next year, and the rest of it in May of 2014.

—CNBC’s Mary Thompson contributed to this article.

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