New York, Nov 25, 2019 — Charles Schwab Corp agreed on Monday to buy TD Ameritrade Holding Corp in an all-stock deal valued at $26 billion, creating a brokerage giant in a market that has been ravaged by price wars.
The acquisition will shake up the retail brokerage industry, creating a company with $5 trillion in assets under management and putting smaller rivals under pressure to scout for tie-ups. The deal is expected to attract the attention of anti-trust regulators, analysts say.
The discount brokerage business is facing strong headwinds from new, nimbler startups that are gaining market share by eliminating commissions on stock trades.
Last month Schwab was the first major brokerage to eliminate commissions, and has been followed by others including Fidelity Investments, E*Trade Financial Corp and TD Ameritrade.
“In a low, or no fees world … the pressure will be on other financial services rivals to try to keep up, or to gain further scale themselves,” Bankrate.com senior economic analyst Mark Hamrick said.
While the deal could give Schwab an edge in the price war, analysts said the merger would probably attract regulatory attention, but should still be approved.
“The industry will continue to have large players and we won’t think it will derail a deal,” said Stephen Biggar, director of financial institutions research at Argus Research.
The combined company would have about 65% to 70% of investment account assets, according to a note from KBW last week.
TERMS OF THE DEAL
As part of the deal, expected to close in the second half of 2020, Ameritrade stockholders will get 1.0837 Schwab shares for every share held, or $52.23 based on Schwab’s Friday close.
The deal is expected to add 10%-15% to earnings per share under U.S. accounting rules in the third year following the close of the deal, the companies said.
Based on Schwab’s Friday close, the deal represents a premium of 26% to TD Ameritrade’s closing price on Wednesday, a day before CNBC reported the deal.
TD Ameritrade CEO Tim Hockey is due to step down in February. The companies said on Monday they will suspend the CEO search and named TD Ameritrade Chief Financial Officer Stephen Boyle as TD’s interim president and CEO.
Last week, CNBC reported the combined company is expected to be led by Schwab’s Chief Executive Officer Walt Bettinger.
TD Ameritrade’s shares were up 4% in premarket trade. – Reuters