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Morgan Stanley to sell stake to Japan's MUFG

The deal, which could be worth $6 billion for Morgan, comes a day after firm converted to a bank holding company.

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By David Ellis, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Morgan Stanley agreed to sell up to a fifth of the company to Mitsubishi UFJ Financial Group (MUFG), one of Japan's largest banks, the companies announced Monday.

The Tokyo-based financial institution said it had entered into an agreement to acquire anywhere between 10% and 20% of Morgan Stanley's common stock.

Investors cheered the news as Morgan Stanley (MS, Fortune 500) shares gained 10% in morning trading.

The announcement comes on the heels of late Sunday's historic decision by federal regulators to convert both Morgan Stanley and Goldman Sachs (GS, Fortune 500) from free-standing investment banks into bank holding companies.

Morgan Stanley Chairman and CEO John Mack said that the partnership with Mitsubishi UFJ, or MUFG, would be "valuable" as Morgan Stanley transforms itself into a more diversified financial institution.

"This strategic alliance with Mitsubishi UFJ can put Morgan Stanley in an even stronger position as we look to realize the opportunities we see in the rapidly changing financial marketplace," Mack said in a statement.

Mitsubishi UFJ, or MUFG, said the two companies had not determined a price for the deal, although a 20% stake of Morgan's $30 billion market capitalization would be worth about $6 billion.

The deal, which would also give the Japanese institution a spot on Morgan Stanley's board, remains subject to due diligence and regulatory approval.

Morgan Stanley had reportedly been considering numerous strategic options in recent weeks, including selling a larger stake to the state-run China Investment Corporation, which acquired a 9.9% stake in the New York-based securities firm in December of last year. At the time, that stake was worth about $5 billion.

The sale to MUFG, however, could also throw cold water on a possible tie-up between Morgan Stanley and commercial bank Wachovia (WB, Fortune 500), which was the subject of much market speculation last week following the stunning collapse of Lehman Brothers and equally dramatic merger between Bank of America (BAC, Fortune 500) and Merrill Lynch (MER, Fortune 500). To top of page

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