TD Ameritrade said Monday it bought online brokerage rival Scottrade for $4 billion in stock and cash. Toronto-Dominion Bank, TD's largest shareholder, is acquiring Scottrade Bank for US$1.3 billion in a deal that will expand its USA operations. TD will also purchase $400 million in new common stock from TD Ameritrade in connection with the proposed transaction.
A representative for the Toronto-based bank declined to comment, and representatives for Omaha, Nebraska-based TD Ameritrade and Town & Country, Missouri-based Scottrade didn't respond to messages outside of normal business hours.
TD Ameritrade said its payment will include $1 billion or roughly 28 million shares and $1.7 billion in cash.
In addition to the Scottrade deal, TD Ameritrade said its fourth-quarter profit declined 13 percent to $185 million, or 35 cents per share, as trading slowed.
TD Ameritrade said the deal "adds significant scale to its retail business, extends its leadership in trading and more than quadruples the size of its branch network". The company sees savings of about $450 million from the annual expense synergies apart from $300 million more additional long-term opportunities. The combined company will have 600,000 average client trades per day, and $944 billion in client assets, the Wall Street Journal reported. The deal is expected to generate double-digit earnings accretion and has been approved by both boards.
Following this transaction, the company expects to maintain strong free cash flow.
TD Ameritrade now charges $9.99 on transactions to buy or sell assets. Financial services firms are spending more to reach clients through their mobile devices, he said, as well as for cybersecurity and software investments needed to stay on top of regulation such as the Labor Department's new fiduciary rule.
Scottrade has about 3,700 employees in about 500 branches across the United States.
TD Ameritrade chief executive Tim Hockey called Scottrade a partner with a proven track record. "If you're a TD Ameritrade client, that scale allows us to invest in the future". "Together, we will be well-positioned to compete in today's rapidly evolving financial services industry".
The deal is targeted to close by September 30, 2017.
Barclays Capital Inc is financial adviser to TD Ameritrade, while Wachtell, Lipton, Rosen & Katz is legal adviser. Goldman Sachs & Co (GS.N) is advising Scottrade, with Sullivan & Cromwell acting as legal adviser.