Ameritrade Holding Corp, the US' third-largest online discount brokerage, agreed Sunday to acquire a rival, Datek Online Holdings Corp, for US$1.29 billion in stock, the companies said.
The acquisition, which comes amid a slump among online brokerages, ends a fierce, bidding war of months for control of Datek as rival suitors bid up Datek's price by nearly 100 percent.
Indeed, Datek had originally been valued by analysts at only about US$700 million, but bidders like Ameritrade, E-Trade Group, Wells Fargo, Bank of America and TD Waterhouse, the subsidiary of TD Bank of Toronto, ratcheted up the price during several intense rounds of bidding, spurred by the pressures of a consolidating marketplace. Ameritrade and E-Trade are the nation's only publicly traded online brokerages.
With only a handful of takeover targets left among the online brokerages, Datek, based in Jersey City, New Jersey, became an especially sought-after prize among its rivals.
It is unclear, however, how the market will receive the high-priced acquisition, especially as Ameritrade, based in Omaha, Nebraska, just warned on Friday that its earnings in the second quarter would fall at the low end of its forecast. If it is any indication, the Bank of Montreal recently paid US$520 million for CSFBdirect, the online brokerage of Credit Suisse First Boston million, and was widely condemned by analysts and shareholders for overpaying for CSFBdirect.
On a cost-per account basis, Ameritrade is paying an even higher premium -- more than US$1,500 an account -- than the Bank of Montreal did, analysts said. The Bank of Montreal paid US$1,113 per account.
If the transaction is completed, Ameritrade would have annual revenues of US$800 million and US$43 billion in client assets in about 2.7 million online brokerage accounts.
"This announcement marks an extraordinary advancement in Ameritrade's 27-year history of building a premier financial institution in the online brokerage industry," said J. Joe Ricketts, the company's chairman and founder. "I am particularly excited by the strength of the experience, shared vision and financial sophistication that we expect our new board of directors to bring in support of our management's focus on ensuring that the company delivers on its full potential."
Datek is privately owned and is controlled by a consortium led by Bain Capital Inc, which bought it a year and a half ago for about US$700 million. Other investors include the private investment firms TA Associates, Silver Lake Partners and Advent International.
The investors decided to put the company up for sale early this year after Datek paid US$6.3 million to settle federal charges that its former day trading unit engaged in securities fraud in the 1990's.
The Securities and Exchange Commission accused the company's former day trading unit, Datek Securities, of making hundreds of millions of dollars in profits by engaging in illegal trading practices and fraudulent bookkeeping. The fine was among the largest ever paid by a brokerage firm.
Datek Online, the online brokerage firm that evolved out of a day trading unit, was not implicated.
Under the deal announced late Sunday night, the Ricketts family would own 27.6 percent of Ameritrade's common stock. Bain Capital would own about 10.7 percent and other investors in Datek would have smaller holdings.
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