Poacher to prey

SINCE the 1930s Morgan Stanley has been dispensing advice to America's most prominent companies. Now sound counsel may be needed at home. The Wall Street firm must ponder how to respond to a $1 billion investment by a hedge fund with a history of stirring up changes on boards and in executive suites.The purchase, by ValueAct, a San Francisco fund, ought not to be a surprise. Judged on the measures often used as a first screen to identify takeover targets, Morgan Stanley has long looked vulnerable. A letter from ValueAct to its own investors early this month noted that the investment bank was trading at only 70% of book value, implying that a break-up could be lucrative. Since news of its investment emerged on August 15th, that has risen to 80%, providing an immediate return without undermining the thesis (see chart).Predictably, Morgan Stanley said it welcomed its new shareholder (as it would any investor). There may be at least some truth in this. ValueAct's letter extolled Morgan Stanley's virtues and its strategy. The fund has not demanded board seats or changes, as it has elsewhere.This flattery may partly...Continue reading
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