Discount broker Charles Schwab has agreed to purchase smaller rival TD Ameritrade in an all-stock deal worth around $26bn, creating a brokerage giant with more than $5 trillion in assets.
The deal combines the two firms’ expertise including trading and wealth management platforms, custody platforms, retirement services, banking, and asset management services, among others.
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Transaction details
As per the agreed terms, TD Ameritrade stockholders will be entitled to receive 1.0837 Schwab shares for each share held.
The merged entity, which combines $3.77 trillion from San Francisco-based Schwab and $1.3 trillion from Omaha-based TD Ameritrade, will cater to over 24 million clients.
Existing shareholders of Schwab will have a 69% interest in the combined group, while TD Ameritrade stockholders will hold a stake of 18%.
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By GlobalDataTD Bank, which owns 43% of TD Ameritrade, will have a 13% stake in the combined business.
The new business will be based in the new Schwab campus in Westlake, Texas.
The companies expect the transaction to add 10-15% to GAAP EPS and 15-20% to operating cash EPS in the third year following completion.
The deal already secured the clearance of the two companies’ boards.
It currently awaits stockholder and regulatory approvals, with completion anticipated in the second half of next year. The integration process is expected to take 18 to 36 months.
Meanwhile, TD Ameritrade named its CFO Stephen Boyle as its new acting CEO to spearhead the combination with Schwab.
On behalf of Schwab, COO Joe Martinetto will lead the integration process.
Schwab president and CEO Walt Bettinger said: “With this transaction, we will capitalise on the unique opportunity to build a firm with the soul of a challenger and the resources of a large financial services institution that will be uniquely positioned to serve the investment, trading and wealth management needs of investors across every phase of their financial journeys.”
Price war disrupts brokerage market
The latest mega-deal comes amidst the ongoing price war in the brokerage market.
The price war prompted several firms to remove stock trade commissions. Recently, both Schwab and TD Ameritrade eliminated the commissions to gain an edge over peers.
According to media reports, more mergers are likely to take place to cope up with the recent changes in the brokerage space.
