Charles Schwab will buy TD Ameritrade in $26 billion all-stock deal
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Charles Schwab announced plans Monday to buy discount brokerage rival TD Ameritrade in an all-stock deal valued at $26 billion.
As part of the agreement, Ameritrade stockholders will receive 1.0837 Schwab shares for every share held, a 17% premium over the stock's 30-day average price before news of the deal broke. The deal is expected to close in the second half of 2020.
Schwab shares jumped 8% and TD Ameritrade's stock shot up 16% in trading on Thursday and Friday. Shares of TD Ameritrade closed up 7.6% higher to $51.78 on Monday, while Schwab shares rose 2.3% to $49.31.
The merging of the two biggest publicly traded discount brokers will create a mammoth with more than $5 trillion in client assets, $3.8 trillion from Schwab and $1.3 trillion from TD Ameritrade. The combined company will serve more than 24 million clients. San Francisco-based Schwab has a market value of $57.5 billion and Omaha-based TD Ameritrade has a $22.4 billion market cap.
"We believe the combination of our two great companies positions us to be competing and winning in the investment services business for the long run — the very long run," said Charles Schwab president and CEO Walter Bettinger.
Schwab's current shareholders will own 69% and TD Ameritrade's existing stockholders will own 18% of the combined company. TD Bank, which currently owns 43% of TD Ameritrade, will own the proportionate 13% of the new company.
Pending regulatory approval, the integration of the two firms is expected to take 18 months to 36 months after the deal is closed. The company is expecting $1.6 billion in integration spending over three years after closing. The combined company's headquarters will relocate to Schwab's new campus in Westlake, Texas.
The deal will create "a Goliath in Wealth Management," Wells Fargo senior analyst Mike Mayo said in a note to clients on Thursday, when talks of the merger were broken by CNBC's Becky Quick.
Brokerage industry shake-up
More consolidation in the brokerage industry is expected given the massive amount of disruption that has taken place, with all the major brokers dropping commission fees for trading in recent months. Schwab was the first of the major players to make the move, eliminating commissions in early October. Schwab's competitors, including Fidelity and TD Ameritrade, were quick to follow.
After dropping commissions, Schwab and TD Ameritrade's stocks were under pressure as investors worried that the lost commission revenue would pressure margins; however, Schwab proved its free trading is paying off in terms of new client accounts.
Pedestrians pass in front of a Charles Schwab bank branch in downtown Chicago, Illinois.
Christopher Dilts | Bloomberg | Getty Images
While some Wall Street analysts are worried the consolidation of two of the biggest players could flag antitrust issues, the company will only capture about 11% of client assets in the retail financial services market, management said on a conference call on Monday.
The new company will hold over a third of the RIA custody market, JMP Securities estimates.
The advantage to the Schwab-TD Ameritrade deal is the brokerage giant will be able to cut costs, stream new revenue opportunities and improve the platform for clients, said JMP Securities analyst Devin Ryan. Given the high amount of overlapping back-office operations and vendor costs, the company is expecting about $1.8 to $2 billion in cost savings, about 20% of the combined company's cost base.
TD Ameritrade CEO Tim Hockey previously announced plans to step down next February. The companies said Monday they will suspend the CEO search and have named TD Ameritrade Chief Financial Officer Stephen Boyle as TD Ameritrade's interim president and CEO.
TD Securities and J.P. Morgan served as financial advisors to TD Bank and Simpson Thacher & Bartlett LLP served as legal advisor. PJT Partners and Sandler O'Neill served as financial advisors and Wachtell, Lipton, Rosen & Katz acted as legal advisor to the Strategic Development Committee of the Board of Directors of TD Ameritrade. Credit Suisse Securities served as financial advisor to Charles Schwab and Davis Polk & Wardwell served as legal advisor.
The deal came as a shock to analysts on Wall Street, who pegged E-Trade as the most likely acquisition target among the smaller brokers. Shares of E-Trade are lower since news of the deal first broke last week.
The deal will likely pressure smaller brokers like Interactive Brokers, as well as Silicon Valley start-up Robinhood which kick-started free stock trading in 2013.
In November 2019, Charles Schwab announced its acquisition of TD Ameritrade for $26 billion. The deal closed a year later. So, for the past three years, Charles Schwab (SCHW) has been integrating TD Ameritrade into its business, including the well-regarded Thinkorswim
Thinkorswim
Thinkorswim is an electronic trading platform owned by Charles Schwab Corporation used to trade financial assets. It is geared for self-directed stock, options and futures traders.
Charles Schwab Corp. lost its bid to end antitrust litigation seeking to unwind its $26 billion acquisition of TD Ameritrade over claims that the transaction slashed rebates and discounts for retail investors. Judge Amos L.
Why is my account moving to Charles Schwab? In late 2019, Charles Schwab acquired TD Ameritrade and began integrating the two businesses. Over two years into the integration process, TD Ameritrade accounts will officially transition to Charles Schwab accounts over Labor Day weekend.
Charles Schwab (SCHW), an IBD Best Online Broker that bought TD Ameritrade in 2020, on Monday said it plans to meld TD Ameritrade and thinkorswim capabilities with it own into a new brand called Schwab Trading Powered by Ameritrade. This move puts thinkorswim in the hands of all Schwab clients for the first time.
Generally speaking, sophisticated investors may have found Schwab's trading platform somewhat more useful. StreetSmart has a small edge over thinkorswim when it comes to customizing data. The All-In-One Trading Ticket may prove useful to an investor who can use a big-picture overview of their positions.
TD Ameritrade has been acquired by Charles Schwab, and all accounts have been moved. At Schwab, you get access to thinkorswim® trading platforms and robust trading education, along with great service, a commitment to low costs, and a wide range of wealth management and investing solutions.
TD Ameritrade has been acquired by Charles Schwab. Now you'll get access to thinkorswim® trading platforms and robust trading education at Schwab, along with great service, a commitment to low costs, and a wide range of wealth management and investing solutions.
Both brokers pay interest on uninvested cash in your brokerage account. The trading technology category is also a tie, although smaller investors might benefit from Schwab with access to fractional shares. Similarly, advanced investors will gravitate towards TD Ameritrade's award-winning thinkorswim trading platform.
Your assets are yours. The SEC's Customer Protection Rule (Rule 15c3-3) safeguards customer assets at brokerage firms by preventing firms from using customer assets to finance their own proprietary businesses. At Schwab, clients' fully paid securities are segregated so that they are not available to the firm.
This is to ensure that even if a brokerage company fails, its customers' assets will be safe. Thus, Schwab holds your cash and investments separate from their own assets and these can simply be returned to you in a liquidation.
Clients have been moving uninvested cash from low-paying bank accounts to higher-paying options. That has put pressure on Schwab's earnings because the company is reliant on net interest revenue and its primary funding source for interest-earning assets is uninvested client cash. The stock is down 31% this year.
Fitch Ratings - Chicago - 29 Jan 2024: Fitch Ratings has affirmed The Charles Schwab Corporation's (Schwab) Long- and Short-Term Issuer Default Ratings (IDRs) at 'A'/'F1', and its Viability Rating (VR) at 'a'. The Rating Outlook is Stable.
Drawbacks include a lack of fractional shares and international trading; TD Ameritrade customers can only trade U.S. and Canadian-listed securities. Cryptocurrency: Cryptocurrencies such as Bitcoin, Ethereum, and Dogecoin are not available to trade at TD Ameritrade.
For mutual funds, Vanguard is significantly cheaper, while options traders would save money with Charles Schwab. Mutual fund investors should keep in mind that these costs apply only to some funds. Both brokers offer a long list of mutual funds that can be traded with no transaction fee.
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