Charles Schwab Corp. announced that it agreed to buy TD Ameritrade Holding Corp. in a multibillion-dollar deal that will reshape the retail brokerage business.
Schwab will acquire TD Ameritrade in an all-stock transaction the companies say is valued at $26 billion, or about $48.50 per share — a 19% premium based on Schwab's share price as of the close last Wednesday. TD Ameritrade stockholders will receive 1.0837 Schwab shares for each TD Ameritrade share.
The equity value of the deal is $28.3 billion based on Schwab's closing price of $48.20 on Friday.
Monday's
announcement of the deal came after news of the acquisition broke last Thursday, sending up shares of both firms. Schwab, America's original discount broker, will now have even more sway over the sector it pioneered nearly a half-century ago.
"Our view is that this is a great deal for the consumer," Schwab CEO Walt Bettinger said on a conference call analysts. "We've been doing nothing but driving costs down for decades."
[More: Schwab-TD deal could create 'repapering nightmare' for thousands of RIAs]
The tie-up creates a mega-business with $5 trillion in assets — a Goliath that may attract the attention of antitrust regulators, analysts say. Smaller brokerages like ETrade Financial Corp. will have to contend with a much more formidable competitor.
The combined firm will relocate its headquarters to Schwab's new campus in Westlake, Texas, according to Monday's statement, though Schwab's San Francisco operations will remain a sizable hub.
Soaring shares
TD Bank, which holds 43% of TD Ameritrade, will own roughly 13% of the new business. Its voting stake will be limited to 9.9%, with the rest of its position in a nonvoting class of stock. The Canadian lender will have two new seats on the combined firm's board, while TD Ameritrade will name a single director.
As a result of the deal, Schwab will see its business add 12 million client accounts, $1.3 trillion in assets, and roughly $5 billion a year in revenue.
Mr. Bettinger downplayed the potential antitrust risks of the combination.
"We have numerous competitors, many of which are far larger than us today and far larger than a combined organization," he said on the call. "They're going to continue to come right after us, as they are now in all aspects of the business."
Schwab
said in the statement that the combined company will have "the resources of a large financial services institution that will be uniquely positioned to serve the investment, trading and wealth management needs of investors across every phase of their financial journeys."
Last month, Schwab
eliminated commissions for U.S. stock trading, forcing other brokerages to follow suit and sweeping away an important revenue stream. Analysts speculated that online brokerages might have to cut deals to survive the increased industry pressure.
[Recommended video: Walt Bettinger lays out Schwab's plan with zero commission trading]
TD Ameritrade has relied more on commissions than some competitors, drawing 36% of its net revenue from commissions in 2018, compared to 7% at Schwab.
Founder Charles Schwab hinted he was open to deal-making in an interview in October.
"I don't know whether we'll be successful in that pursuit, but in the industry you're going to see more consolidation, more firms getting together," he said. "You just have to have that scale and volume."
If the deal goes through, the combined company will have unparalleled clout as
top custody service providers to independent financial advisers.
That
may give authorities pause, Keefe Bruyette & Woods analyst Kyle Voigt wrote Thursday. He estimates Schwab has about a 50% market share of registered investment adviser custody assets, while TD Ameritrade may have as much as 20%.
The acquisition comes after TD Ameritrade announced in July that CEO Tim Hockey would leave early next year. Mr. Hockey denied at the time that his departure had anything to do with a potential deal.
Credit Suisse Group advised Schwab on the deal, while PJT Partners and Sandler O'Neill & Partners advised TD Ameritrade's board. JPMorgan Chase & Co. advised TD Bank and Barclays advised the family of Joseph Ricketts, TD Ameritrade's founder and largest individual shareholder.
