(Bloomberg) -- TD Ameritrade and its largest stakeholder, Toronto-Dominion Bank, agreed to buy Scottrade for $4 billion, combining two of the largest online brokerages while expanding the U.S. operations of Canada’s second-largest lender.
The acquisition comes as TD Ameritrade has been developing a robo adviser platform, which is expected to be less automated and more expensive than some of its competitors' offerings. A beta version will launch in the coming weeks, according to a spokeswoman. The final version is to be launched in early 2017, the spokeswoman said.
Former CEO Fred Tomczyk at TD Ameritrade's Elite Advisor Summit in 2015 said the digital offering would be supported by human specialists. "Our belief is that you still need human beings to be part of the process," he told Financial Planning at the summit. Among those specialists are RIAs who transition over from Scottrade to TD Ameritrade after the acquisitoin closes next year.
TD Ameritrade agreed to acquire Scottrade’s brokerage operations for about $2.7 billion in cash and stock, the firm said Monday in a statement. Toronto-Dominion, which owns about 42% of TD Ameritrade, will purchase Scottrade’s banking operations for $1.3 billion in cash, adding to its U.S. branch network that stretches from Maine to Florida, the Toronto-based lender said in a separate statement.
The deal is expected to be completed by Sept. 30, 2017, with clearing operations moving to TD Ameritrade systems the next year. About 28 million shares in TD Ameritrade will be issued to Scottrade shareholders and Toronto-Dominion will purchase another 11 million shares in the company, which will help fund the $1.7 billion cash portion of the price. The companies expect $450 million in annual cost savings, with a quarter of that coming in the first year after the close.
QuoteThe acquisition of Scottrade adds to a flurry of recent deals in an industry that’s facing pressure from lower trading volumes and sluggish revenue growth.
The acquisition of Scottrade adds to a flurry of recent deals in an industry that’s facing pressure from lower trading volumes and sluggish revenue growth. E*Trade bought Aperture New Holdings, parent of the futures and options trading platform OptionsHouse, in a $725 million cash deal in July, and Ally Financial purchased TradeKing Group for about $275 million a month earlier.
Toronto-Dominion extends its U.S. acquisition streak with this deal. The Canadian bank has spent more than $17 billion building a U.S. 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 American clients. The lender has more recently focused on buying credit-card portfolios, though CEO Bharat Masrani said as recently as September that he’s still interested in “tuck-in acquisitions” and other U.S. assets if they make strategic sense.
TD Ameritrade, based in Omaha, Nebraska, has a market value of $19.5 billion. Closely held Scottrade, based in Town & Country, Missouri, had $1.04 billion of revenue in 2015, Wells Fargo 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, which have been squeezed in recent years amid competition from robo advisers and a shift away from stock picking and day trading toward passive investing.
Scottrade CEO Rodger Riney, who co-founded the discount brokerage in 1980, will join the TD Ameritrade board of directors as part of the deal. Riney’s 75% stake is valued at $2.2 billion, according to the Bloomberg Billionaires Index. The company announced last year that he was undergoing treatment for multiple myeloma, a form of blood cancer.
Scottrade’s business is profitable, but less than its peers and the company’s revenue hasn’t grown since 2014. These challenges, along with Riney’s health, could influence the decision to sell, the Wells Fargo analysts said earlier this month.
TD Ameritrade was created in January 2006 when the former Ameritrade bought Toronto-Dominion’s U.S. network of independent advisers, TD Waterhouse. In exchange, the bank received a large stake in the combined firm. The companies have maintained close business ties. Last year, Tim Hockey left the lender, where he ran Canadian banking and wealth management, and became TD Ameritrade’s CEO.
Barclays is advising TD Ameritrade, while Goldman Sachs is serving as Scottrade’s adviser on the deal. Wachtell, Lipton Rosen & Katz and Sullivan & Cromwell are the respective legal counselors.
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