Morgan Stanley, Dean Witter To Merge To Form Finance Giant

Morgan Stanley Group Inc. and Dean Witter, Discover & Co. said Wednesday they agreed to merge, creating the largest financial services company in the United States.

The new company to be called Morgan Stanley, Dean Witter, Discover & Co. will combine the retail brokerage and credit card businesses of Dean Witter with the professional investment management and securities underwriting of Morgan Stanley.

The companies said the combined operation will manage more than $270 billion in assets, the largest of any securities firm, and have market capitalisation of $21 billion. Dean Witter has 361 bra- nch offices with more than 9,000 account executives, and its Disco- ver credit card, with 39 million customers, is the nations third largest in terms of receivables.

Morgan Stanley, formed in 1935, has 27 principal offices in 19 countries and is a leader among investment banking companies, which provide securities underwriting services to corporations and governments and advice on mergers and acquisitions.

Under the merger pact, unanimously approved by the boards of both companies, Dean Witter will swap 1.65 shares for each Morgan Stanley share. Dean Witters stock closed Tuesday at $38.625, up 25 cents, and Morgan Stanley closed at $57.375, up 25 cents, both on the New York Stock Exchange. Dean Witter shareholders will own about 55 per cent of the new company and Morgan Stanley holders about 45 per cent.

The new company will have a 14-member board to which each firm will nominate seven members. The merger, expected to be completed in mid-1997, will be accounted for as a tax-free pooling of interests. Dean Witter Chairman and chief executive Philip Purcell will serve in those capacities after the merger. John Mack, currently president of Morgan Stanley, will be president and chief operating officer of the merged company. Morgan Stanley chairman Richard Fisher will be chairman of the new firms executive committee of the board.

The firms did not say if any staff cuts were planned as a result of the combination, but they did note there was little overlap between Morgan Stanleys investment banking and institutional operations and Dean Witters retail focus. This bold move will accelerate the ability of both companies to achieve our respective long-term strategic goals, Mack said. With little overlap between the two firms, there will be extraordinary new opportunities for our employees and customers as we create a uniquely integrated company, he said.

In connection with the deal, the firms said they granted each other options to acquire shares representing 19.9 per cent of the other firm.

Such options are often issued to dissuade competing or disruptive counter-bids.