Charles Schwab to buy rival TD Ameritrade in $26-billion all Good article with details
Charles Schwab to buy rival TD Ameritrade in $26-billion all-stock deal
JAMES BRADSHAWBANKING REPORTER
PUBLISHED 2 HOURS AGOUPDATED NOVEMBER 25, 2019 Globe and Mail
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Charles Schwab Corp. is acquiring rival discount brokerage TD Ameritrade Holding Corp. for US$26-billion in an all-stock deal that creates a financial service behemoth with US$5-trillion in assets.
The terms of the deal announced Monday will pay TD Ameritrade shareholders 1.0837 Schwab shares for each Ameritrade share they own.
Toronto-Dominion Bank, which is Canada's second-largest lender by assets, owns 43 per cent of TD Ameritrade, and will swap its shares for a 13.4-per-cent stake in Schwab. As a major shareholder, TD supported the transaction, by which Schwab agreed to pay a 17-per-cent premium to Ameritrade's average share price over 30 days ending Nov. 20. TD's voting stake in Schwab will be capped at 9.9 per cent.
The transaction is expected to close in the second half of 2020, subject to approvals from regulators and shareholders.
Under a new stockholders’ agreement, effective when the deal closes, TD will have two seats on Schwab’s board. And the Canadian bank has also struck a revised contract to preserve some of the roughly $275-million in revenue TD collects from a sweep deposit agreement with Ameritrade, though it will receive lower revenues over time. Under the new deal, starting July of 2021, Schwab can reduce US$103-billion in insured deposits by up to US$10-billion a year, to a floor of US$50-billion. The agreement runs to 2031, and includes a servicing fee of 15 basis points, down from the current 25 basis points. (100 basis points equal one percentage point).
"This transaction will deliver significant value for TD and provide us with an ownership stake in one of the most innovative and highly regarded investment firms in the U.S.," said TD CEO Bharat Masrani, in a statement.
TD Ameritrade had been searching for a new CEO after announcing that current chief executive Tim Hockey would leave the company in the new year. But that search has now been called off, and TD Ameritrade's chief financial officer, Stephen Boyle, has been named interim CEO.
"Partnering with Schwab on this transformative opportunity makes the right strategic and financial sense for TD Ameritrade," Mr. Boyle said in a statement.
The deal combines the two largest U.S. discount brokerages, redrawing the competitive dynamics for online trading. The discount-brokerage market has been upended by a fierce price war set off by Schwab in early October. Schwab, a full-service financial firm and America's largest online broker with 12 million clients and US$3-trillion of assets under management, slashed its fees for online trading of U.S. stocks, exchange-traded funds and options to zero.
That forced competitors such as Ameritrade, which has US$1-trillion in assets, and others to match the aggressive pricing. The moves sent U.S. brokerage stocks tumbling, and the effect was especially acute for TD Ameritrade, which was expected to lose 15 to 16 per cent of its revenue from lost trading commissions. In Canada, TD was expected to suffer proportionately, as a major Ameritrade shareholder.
The renewed competition set off a flurry of speculation about potential deals in the sector, including the prospect that TD Ameritrade could try to buy smaller rival ETrade Financial Corp., which had long been a rumoured takeover target.
Reports that Ameritrade would instead sell to Schwab, with TD's blessing, first surfaced last Thursday, as first reported by CNBC, pushing shares in the two companies higher.
“We believe the combination of our two great companies positions us to be competing and winning in the investment services business for the long run—the very long run,” said Schwab CEO Walt Bettinger, in a statement.