The two companies are planning to combine their operations to form a larger online retail broker service that will operate under the name TD Ameritrade.
Under the terms of the agreement, TD Waterhouse’s parent Toronto-Dominion Bank (TD Bank) will exchange the US brokerage business of TD Waterhouse for a 32% ownership in the new merged company. The bank will also acquire Ameritrade’s Canadian brokerage operations for $60m.
Ameritrade shareholders will receive a cash dividend of $6 per share, subject to closing, and Ameritrade CEO Joe Moglia will run the new firm.
Ameritrade is reported to have bought the firm for $2.9bn, but is hoping to realize $578m of annual gross synergies as a result of the acquisition.
It also expects to increase pre-tax margin and net income with minimal additional exposure to credit or interest rate risk.
We expect that it will create significant value for shareholders by generating substantial cost synergies and deliver a more diverse revenue mix by shifting to an asset-gathering model, said Moglia.
The move will come as no surprise to some industry analysts, who have been talking about the possibility of a consolidation between the two firms for some time now.
Now many observers are looking to rival online trading firm E*Trade, which last month made a formal bid to acquire Ameritrade. Some believe the announcement will encourage the firm to find its own merger partners, as the trading industry continues to expand its online operations.
