TD Ameritrade Holding Corp and its largest stakeholder, Toronto-Dominion Bank, agreed to buy Scottrade Financial Services Inc for US$4 billion, combining two of the largest online brokerages while expanding the US operations of Canada’s second-largest lender.
TD Ameritrade will acquire Scottrade’s brokerage operations for about US$2.7 billion in cash and stock, the firm said in a statement on Monday.
Toronto-Dominion, which owns about 42 percent of TD Ameritrade, agreed to purchase Scottrade’s online bank for US$1.3 billion in cash, adding to its US branch network that stretches from Maine to Florida, the Toronto-based lender said in a separate statement.
Photo: EPA
The deal is expected to be completed by Sept. 30, next year, with clearing operations moving to TD Ameritrade systems the next year.
About 28 million shares in TD Ameritrade are to be issued to Scottrade shareholders and Toronto-Dominion is to purchase another 11 million shares in the firm, which will help fund the US$1.7 billion cash portion of the price.
The companies expect US$450 million in annual cost savings, with a quarter of that coming in the first year after the close.
“This combination will allow us to leverage our strengths, increase our scale and further accelerate our asset gathering capabilities,” TD Ameritrade chief executive officer Tim Hockey said in a conference call to discuss the deal.
The acquisition of Scottrade adds to a flurry of recent deals in an industry that is facing pressure from lower trading volumes and sluggish revenue growth.
E-Trade Financial Corp in July bought Aperture New Holdings Inc, parent of the futures and options trading platform OptionsHouse, in a US$725 million cash deal, and Ally Financial Inc a month earlier purchased TradeKing Group Inc for about US$275 million.
Toronto-Dominion gains Scottrade Bank, a business with about US$13 billion in cash and securities, US$4 billion in loans and leases and US$15 billion in sweep deposits as of Sept. 30.
Scottrade Bank offers personal banking for Scottrade brokerage customers, business lending, loan servicing and commercial equipment financing. Toronto-Dominion is to take US$175 million of goodwill tied to the acquisition and its common equity tier 1 ratio is to decrease by about 30 basis points after the deal.
The acquisition is expected to add to earnings in the first full year after closing.
Toronto-Dominion’s stake in TD Ameritrade will be 41.4 percent after the deal, the lender said.
Toronto-Dominion has spent more than US$17 billion building a US branch network since 2005 and has sought to fortify its wealth-management business since buying New York money manager Epoch Investment Partners in 2013 to attract more wealthy US clients.
The lender has more recently focused on buying credit-card portfolios, although chief executive officer Bharat Masrani said as recently as lat month that he is still interested in “tuck-in acquisitions” and other US assets if they make strategic sense.
TD Ameritrade, based in Omaha, Nebraska, has a market value of US$19.5 billion. Closely held Scottrade, based in Town and Country, Missouri, last year had US$1.04 billion of revenue, Wells Fargo & Co analysts led by Christopher Harris said in a report this month.
Online platforms are used by consumers, wealth advisers and other investors to trade securities outside of traditional brokerages. The brokerages have been squeezed in recent years amid competition from automated investment systems, known as “robo-advisers,” and a shift away from stock picking and day-trading toward passive vehicles.
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