(FOOL GLOBAL WIRE)
By Dale Wettlaufer (MF Raleigh)*

ALEXANDRIA, Va., February 5, 1996/FOOLWIRE/ --- MORGAN STANLEY GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MS)") else Response.Write("(NYSE: MS)") end if %> and
DEAN WITTER DISCOVER & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DWD)") else Response.Write("(NYSE: DWD)") end if %> agreed last night to merge, forming the largest securities firm in the US.

WHAT HAPPENED?

The terms of the merger call for Dean Witter shareholders to receive one Morgan Stanley share for 1.65 Dean Witter shares. Based on yesterday's closing prices, that ratio values each Morgan Stanley share at $63.81 or each Dean Witter share at $34.77, depending on how investors want to look at the deal. Following the close of the deal, the new firm, Morgan Stanley, Dean Witter, Discover & Co., will have close to 350 million shares outstanding, with Dean Witter holders owning 55% of the new firm and Morgan Stanley holders owning 45%.

Currently the largest brokerage/investment bank, MERRILL LYNCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MER)") else Response.Write("(NYSE: MER)") end if %>, has an equity value slightly above $14 billion, while the prospective market capitalization of Morgan Stanley, Dean Witter Discover is approximately $22 billion. Both companies contribute strengths to the union. Morgan Stanley brings a very strong position in investment banking, leading Wall Street in merger and acquisition advising and holding a solid position in securities underwriting. Dean Witter brings the third-largest infantry of brokers in the business, now 9000 brokers strong, the third largest credit card business in the country with over $35 billion in credit balances, and $100 million in assets under management. The combined institution would have over a quarter of a trillion dollars under management.

WHAT DOES IT MEAN?

DISTRIBUTION. Morgan Stanley's investment banking arm gains the wide distribution of Dean Witter brokers, strengthening the company's business in underwriting new securities issues as well as secondary offerings. Keeping more of a security offering's distribution in-house also helps profit margins. In turn, Dean Witter brokers will have a wider array of products to offer, although a customer with $10,000 in assets under management isn't going to get the first crack at 1000 shares of a hot IPO.

Morgan Stanley's Van Kampen mutual funds, with over $40 billion in assets under management, gains access to new investor funds with the retail strength of Dean Witter. At the same time, that incremental business becomes more profitable as the fund company doesn't pay outside agencies for its distribution. That's not to say that the new company won't use outside distribution channels. The higher absolute amount of fees coming in will allow the mutual fund business of the new company greater strength to compete with, and possibly take the offensive against, other large money management companies such as Fidelity.

OTHER OPERATING STRENGTHS. While the idea of the merger is to increase revenues and the reach of the two companies, profit margin considerations are also a key to the strategy. In addition to the margins picked up on the business of money management, back office operations (transaction processing, record keeping, purchasing) can be streamlined and consolidated as a function of "synergy." Finally, brokers will have access to a wider array of products and information resources that come with the research strengths of Morgan Stanley.

WHAT HAPPENED TO THE STOCKS?

Shares of Morgan Stanley rose $7 3/8 to $64 3/4 on extraordinarily heavy volume. Dean Witter Discover climbed $1 3/4 to $40 3/8 on heavy volume as well. Shares of PAINE WEBBER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PWJ)") else Response.Write("(NYSE: PWJ)") end if %>, rumored to a merger partner with Morgan last week, fell $2 7/8 to $36.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.