Morgan to Spin Off Discover Card Unit

Morgan Stanley said Monday that its board of directors had approved a plan to spin off its Discover Card credit division, leading to increased speculation that the entire company could be on the block.

Shares of the Wall Street brokerage rose $1.43 to $58.30 on media reports of the sale during regular trading. Shares climbed as high as $59.30 in after-hours trading. No potential buyer has been identified.

The move comes as dissident shareholders and former executives of Morgan Stanley have stepped up their letter-writing campaign, calling for the removal of Philip Purcell, Morgan Stanley’s chairman and chief executive, in a full-page newspaper ad.

Purcell and the board both sent memos to employees, reassuring them on the company’s direction. And in a release accompanying the announcement, Purcell said it was “the right time” for the board to consider the Discover Card spinoff.

“The rationale for this action is twofold,” Purcell said. “One, to maximize the shareholder value in the Discover Card division, and allow management of that business to capitalize on the momentum, both in performance, and in the opportunities opening up in the payments market, and two, to further intensify our focus on the high return growth opportunities within our integrated securities businesses.”

The divestiture is expected to net $8 billion to $9 billion.

Richard Bove, a securities industry analyst with Punk, Ziegel & Co., said that with Purcell’s management changes last week and now the Discover Card sale, the board may yet be forced to consider selling the entire company as criticism mounts.

Bove noted that the dissident group had already called for the sale of the Discover Card unit.

The Discover Card business came to Morgan Stanley when the brokerage was acquired by Dean Witter Discover & Co. in 1997.

On Wednesday, Morgan Stanley reported that the Discover Card division had pretax earnings in the latest quarter of $380 million.

But many analysts saw the credit card unit as a poor fit with Morgan Stanley, which does not have a consumer banking division. Dean Witter had tried to parlay the Discover Card business into an entire discount brokerage arm, but that folded when it combined with Morgan Stanley.