<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 17, 1997
MORGAN STANLEY GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-9085 13-2838811
(STATE OR OTHER (COMMISSION (I.R.S. EMPLOYER
JURISDICTION OF FILE NUMBER) IDENTIFICATION
INCORPORATION) NUMBER)
1585 Broadway, New York, New York 10036
(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: (212) 761-4000
<PAGE>
Item 5. OTHER EVENTS.
As previously disclosed in Morgan Stanley Group Inc.'s ("Morgan Stanley")
Current Report on Form 8-K dated April 14, 1997, Morgan Stanley and Dean
Witter, Discover & Co. ("DWD") announced a definitive agreement to merge ("the
Merger"). The transaction is intended to be accounted for as a pooling of
interests and the new company will be named Morgan Stanley, Dean Witter,
Discover & Co. Under the terms of the merger agreement, each of Morgan
Stanley's common shares will be exchanged for 1.65 of DWD's common shares. The
Merger, which is expected to be completed in mid-1997, is subject to customary
closing conditions, including certain regulatory approvals and the approval of
the stockholders of both companies.
Attached and incorporated by reference herein as Exhibits 99.1 and 99.2,
respectively, are certain financial information for DWD and unaudited pro forma
combined financial information for the combined entity giving effect to the
Merger.
Item 7(c). Financial Statements, Pro Forma Financial Statements and Exhibits.
Exhibit No. Description
- ----------- -----------
99.1 The unaudited consolidated income data of DWD for the three months
ended March 31, 1997 and 1996 (incorporated by reference from page F-7
of Exhibit 99.1 of DWD's Current Report on Form 8-K dated April 17,
1997 (File no. 1-11758)).
99.2 The Morgan Stanley, Dean Witter, Discover & Co. unaudited pro forma
condensed combined statement of financial condition at February 28,
1997, and unaudited pro forma condensed combined statements of income
for the three months ended February 28, 1997 and February 29, 1996.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MORGAN STANLEY GROUP INC.
Registrant
Date: April 17, 1997 /s/ Eileen K. Murray .
--------------------------------------------
Eileen K. Murray
Treasurer and
Chief Accounting Officer
<PAGE>
Index to Exhibits
Exhibit No. Description
- ----------- -----------
99.1 The unaudited consolidated income data of DWD for the three months
ended March 31, 1997 and 1996 (incorporated by reference from page
F-7 of Exhibit 99.1 of DWD's Current Report on Form 8-K dated April
17, 1997 (File no. 1-11758)).
99.2 The Morgan Stanley, Dean Witter, Discover & Co. unaudited pro forma
condensed combined statement of financial condition at February 28,
1997, and unaudited pro forma condensed combined statements of
income for the three months ended February 28, 1997 and February
29, 1996.
<PAGE>
EXHIBIT 99.1
DEAN WITTER, DISCOVER & CO.
Consolidated Income Data
(in millions, except share data)
(unaudited, GAAP basis)
Three Months %
Ended March 31, Increase
1997 1996 (Decrease)
----------- ----------- -----------
Merchant and cardmember fees $ 405.3 $ 320.5 26%
Commissions 305.6 300.7 2%
Asset management and admin. fees 311.6 274.9 13%
Servicing fees 208.6 200.3 4%
Principal transactions 118.0 118.9 (1%)
Investment banking 79.5 64.7 23%
Other 28.6 24.8 15%
----------- -----------
Total non-interest revenues 1,457.2 1,304.8 12%
----------- -----------
Interest revenue 986.5 861.4 15%
Interest expense 414.9 390.7 6%
----------- -----------
Net interest income 571.6 470.7 21%
Provision for losses on receivables 378.4 228.0 66%
----------- -----------
Net credit income 193.2 242.7 (20%)
----------- -----------
Net operating revenues 1,650.4 1,547.5 7%
----------- -----------
Employee compensation and benefits 616.3 570.3 8%
Marketing and business development 186.7 191.9 (3%)
Info. processing and communications 192.5 182.1 6%
Facilities and equipment 64.0 61.2 5%
Other 136.4 141.6 (4%)
----------- -----------
Total non-interest expenses 1,195.9 1,147.1 4%
----------- -----------
Income before income taxes 454.5 400.4 14%
Income tax expense 178.2 154.6 15%
----------- -----------
Net income $ 276.3 $ 245.8 12%
=========== ===========
Primary net income per share (1) $ 0.81 0.71 14%
Primary avg common shares o/s(1) 339,369,778 348,279,692
Fully diluted net income per share(1)$ 0.81 0.70 16%
Fully diluted avg common shares o/s(1) 339,380,448 349,628,396
Oper exp as a % of net oper revenues 72.5% 74.1%
Effective tax rate 39.2% 38.6%
(1) All share and per share data have been restated for the two-for-one
common stock split.
F-7
<PAGE>
EXHIBIT 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
The following unaudited pro forma condensed combined statement of financial
condition combines the historical consolidated statement of financial condition
of Morgan Stanley Group Inc. ("Morgan Stanley") and the historical consolidated
balance sheet of Dean Witter, Discover & Co. ("DWD") giving effect to the Merger
as though it had been consummated on February 28, 1997 after giving effect to
the pro forma adjustments described in the notes to the pro forma condensed
combined financial statements. The following unaudited pro forma condensed
combined statements of income combine the historical consolidated statements of
income of Morgan Stanley and DWD giving effect to the Merger, which is intended
to be accounted for as a pooling of interests after giving effect to the pro
forma adjustments described in the notes to the pro forma condensed combined
financial statements. This information should be read in conjunction with the
audited consolidated financial statements and other financial information
contained in Morgan Stanley's Annual Report on Form 10-K for the fiscal year
ended November 30, 1996 and the unaudited consolidated interim financial
statements contained in Morgan Stanley's Quarterly Report on Form 10-Q for the
period ended February 28, 1997, including the notes thereto, and the audited
consolidated financial statements and other financial information contained in
DWD's Annual Report on Form 10-K for the year ended December 31, 1996. These
unaudited pro forma condensed combined financial statements are not necessarily
indicative of the operating results and financial position that might have been
achieved had the Merger occurred as of the beginning of the earliest period
presented nor are they necessarily indicative of operating results and financial
position which may occur in the future.
<PAGE>
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
Morgan Stanley DWD
Historical Historical Pro Forma Pro Forma
(Dollars in Millions) February 28, 1997 December 31, 1996 Adjustments (a) Combined
----------------- ----------------- --------------- ---------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 4,488 $ 1,999 - $ 6,487
Cash and securities deposited with clearing organizations
or segregated under federal and other regulations 1,490 2,045 - 3,535
Financial instruments owned:
U.S. government and agency securities 15,219 951 - 16,170
Other sovereign government obligations 18,205 - - 18,205
Corporate and other debt 17,905 923 - 18,828
Corporate equities 14,242 40 - 14,282
Derivative contracts 12,818 - - 12,818
Physical commodities 287 - - 287
Securities purchased under agreements to resell 70,029 3,564 - 73,593
Securities borrowed 50,394 3,866 - 54,260
Receivables:
Consumer loans (net of allowances of $815) - 22,373 - 22,373
Customers, net 10,368 2,839 - 13,207
Brokers, dealers and clearing organizations 1,995 - - 1,995
Fees, interest and other 2,524 805 - 3,329
Other assets 4,808 3,009 - 7,817
----------------- ----------------- --------------- ---------
Total assets $224,772 $42,414 - $267,186
================= ================= =============== =========
Liabilities and Stockholders' Equity
Commercial paper and other short-term borrowings $22,241 $ 5,865 - $ 28,106
Deposits - 7,213 - 7,213
Financial instruments sold, not yet purchased:
U.S. government and agency securities 13,991 1,199 - 15,190
Other sovereign government obligations 8,355 - - 8,355
Corporate and other debt 1,242 64 - 1,306
Corporate equities 8,762 11 - 8,773
Derivative contracts 11,006 - - 11,006
Physical commodities 36 - - 36
Securities sold under agreements to repurchase 95,919 3,567 - 99,486
Securities loaned 10,432 3,932 - 14,364
Payables:
Customers 21,041 3,433 - 24,474
Brokers, dealers and clearing organizations 4,113 - - 4,113
Interest and dividends 1,244 200 - 1,444
Other liabilities and accrued expenses 2,425 3,622 - 6,047
Long-term borrowings 16,470 8,144 - 24,614
----------------- ----------------- --------------- ---------
217,277 37,250 - 254,527
----------------- ----------------- --------------- ---------
Capital Units 999 - - 999
----------------- ----------------- --------------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock 1,027 - - 1,027
Common Stock (1) 164 3 $(161)(b) 6
Paid-in capital (1) 892 2,703 161 (b) 3,756
Retained earnings 4,767 2,973 (264)(b) 7,476
Cumulative translation adjustments (14) - - (14)
----------------- ----------------- --------------- ---------
Subtotal 6,836 5,679 (264) 12,251
----------------- ----------------- --------------- ---------
Less:
Stock compensation related deductions 76 (83) - (7)
Common stock held in treasury, at cost 264 598 (264)(b) 598
----------------- ----------------- --------------- ---------
Total stockholders' equity 6,496 5,164 0 11,660
----------------- ----------------- --------------- ---------
----------------- ----------------- --------------- ---------
Total liabilities and stockholders' equity $224,772 $42,414 $0 $267,186
================= ================= =============== =========
</TABLE>
(1) DWD historical amounts have been adjusted to reflect a two-for-one stock
split which became effective January 14, 1997.
See Notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
<PAGE>
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Morgan Stanley DWD
Historical Historical
Three Months Three Months
Ended Ended Pro Forma
(Dollars in Millions, Except Share Data) February 28, 1997 March 31, 1997 Combined (a)
----------------- -------------- -----------
<S> <C> <C> <C>
Revenues:
Investment banking $442 $79 $521
Principal transactions:
Trading 751 118 869
Investments 56 - 56
Commissions 182 306 488
Merchant and cardmember fees - 405 405
Servicing fees - 209 209
Interest and dividends 2,367 987 3,354
Asset management and administration 278 312 590
Other - 28 28
----------------- -------------- -----------
Total revenues 4,076 2,444 6,520
Interest expense 2,282 415 2,697
Provision for losses on credit receivables - 376 376
----------------- -------------- -----------
Net revenues 1,794 1,653 3,447
----------------- -------------- -----------
Expenses excluding interest:
Compensation and benefits 879 616 1,495
Occupancy and equipment 62 64 126
Brokerage, clearing and exchange fees 84 12 96
Information processing and communications 78 181 259
Business development 59 187 246
Professional services 60 29 89
Other 62 110 172
----------------- -------------- -----------
Total expenses excluding interest 1,284 1,199 2,483
----------------- -------------- -----------
Income before income taxes 510 454 964
Provision for income taxes 194 178 372
----------------- -------------- -----------
Net income $316 $276 $592
================= ============== ===========
Preferred stock dividend requirements $19 - $19
================= ============== ===========
Earnings applicable to common shares (1) $297 $276 $573
================= ============== ===========
Average common and common equivalent
shares outstanding (1) 158,307,567 339,369,778 600,577,264 (c)
================= ============== ===========
Primary earnings per share $1.88 $0.81 $0.95 (c)
================= ============== ===========
Fully diluted earnings per share $1.80 $0.81 $0.94 (c)
================= ============== ===========
</TABLE>
(1) Amounts shown are used to calculate primary earnings per share.
See Notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
<PAGE>
MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Morgan Stanley DWD
Historical Historical
Three Months Three Months
Ended Ended Pro Forma
(Dollars in Millions, Except Share Data) February 29, 1996 March 31, 1996 Combined (a)
----------------- -------------- -----------
<S> <C> <C> <C>
Revenues:
Investment banking $399 $65 $464
Principal transactions:
Trading 704 119 823
Investments (7) - (7)
Commissions 154 301 455
Merchant and cardmember fees - 320 320
Servicing fees - 200 200
Interest and dividends 1,933 861 2,794
Asset management and administration 122 275 397
Other 3 25 28
----------------- -------------- -----------
Total revenues 3,308 2,166 5,474
Interest expense 1,859 391 2,250
Provision for losses on credit receivables - 225 225
----------------- -------------- -----------
Net revenues 1,449 1,550 2,999
----------------- -------------- -----------
Expenses excluding interest:
Compensation and benefits 705 570 1,275
Occupancy and equipment 58 61 119
Brokerage, clearing and exchange fees 66 11 77
Information processing and communications 61 171 232
Business development 37 192 229
Professional services 42 18 60
Other 40 127 167
----------------- -------------- -----------
Total expenses excluding interest 1,009 1,150 2,159
----------------- -------------- -----------
Income before income taxes 440 400 840
Provision for income taxes 167 154 321
----------------- -------------- -----------
Net income $273 $246 $519
================= ============== ===========
Preferred stock dividend requirements $16 - $16
================= ============== ===========
Earnings applicable to common shares (1) $257 $246 $503
================= ============== ===========
Average common and common equivalent
shares outstanding (1)(2) 156,549,243 348,279,692 606,585,943 (c)
================= ============== ===========
Primary earnings per share (2) $1.64 $0.71 $0.83 (c)
================= ============== ===========
Fully diluted earnings per share (2) $1.57 $0.70 $0.81 (c)
================= ============== ===========
</TABLE>
(1) Amounts shown are used to calculate primary earnings per share.
(2) DWD historical share and per share amounts have been restated to reflect a
two-for-one stock split which became effective January 14, 1997.
See Notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE (a): BASIS OF PRESENTATION
The unaudited pro forma condensed combined statement of financial condition
combines the historical consolidated statement of financial condition of Morgan
Stanley at February 28, 1997 with the historical consolidated balance sheet of
DWD at December 31, 1996. The unaudited pro forma condensed combined statements
of income combine the historical consolidated statements of income of Morgan
Stanley for the three months ended February 28, 1997 and February 29, 1996 with
the historical consolidated statements of income of DWD for the three months
ended March 31, 1997 and March 31, 1996. Certain amounts reflected in the
historical financial statement presentations of both companies have been
reclassified to conform to the unaudited pro forma condensed combined
presentation.
The unaudited pro forma condensed combined financial statements exclude (i) the
effect of any potential changes in revenues or any operating synergies which may
be achieved upon combining the resources of the companies (ii) investment
banking, legal and miscellaneous transaction costs of the Merger, which will be
reflected as an expense in the period the Merger is consummated, and (iii) costs
associated with the integration and consolidation of the companies which are not
presently estimable.
Transactions between Morgan Stanley and DWD are not material in relation to the
unaudited pro forma condensed combined financial statements and therefore,
intercompany balances have not been eliminated from the pro forma combined
amounts. Morgan Stanley and DWD are in the process of reviewing their
respective accounting policies and do not expect there to be any significant
adjustments necessary in order to conform such policies.
During 1996, Morgan Stanley acquired Miller Anderson & Sherrerd, LLP and Van
Kampen American Capital, Inc., both accounted for as purchase transactions. In
April 1997, Morgan Stanley announced the acquisition of the institutional global
custody business of Barclays PLC. In January 1997, DWD acquired Lombard
Brokerage, Inc. which was accounted for as a purchase transaction. No pro forma
effect has been given to these transactions as the effect is not material.
<PAGE>
NOTE (b): PRO FORMA ADJUSTMENTS
The pro forma adjustments to common stock, paid in capital, and retained
earnings at February 28, 1997 reflect (i) an exchange of 158.0 million shares of
common stock, par value $1.00 per share of Morgan Stanley for 260.7 million
shares (using the exchange ratio of 1.65) of common stock, par value $.01 per
share of DWD and (ii) the cancellation and retirement of all shares of Morgan
Stanley common stock held in treasury. The number of shares of DWD common stock
to be issued at consummation of the Merger will be based upon the actual number
of shares of Morgan Stanley common stock outstanding at that time.
NOTE (c): PRO FORMA EARNINGS PER SHARE
The pro forma combined primary and fully diluted earnings per common share for
the respective periods presented is based on the combined weighted average
number of common shares and share equivalents of Morgan Stanley and DWD. The
number of common shares and share equivalents of Morgan Stanley is based on an
exchange ratio of 1.65 shares of DWD common shares for each issued and
outstanding share and share equivalent of Morgan Stanley.
