E*Trade makes offer for Ameritrade

E*Trade Financial Corp. on Thursday made an unsolicited takeover offer for Ameritrade Holdings Corp. but the rival online discount brokerage said it was not for sale.

E*Trade offered Ameritrade shareholders 47.5 percent of a combined company, plus $1.5 billion in cash.

Based on the most recent average common shares outstanding for both companies, such a cash and stock bid would value Ameritrade at about $5.6 billion, or $10.28 a share.

A merger would combine two of the largest players in the online trading marketplace and create a serious competitor to Charles Schwab Corp., the largest online brokerage. The combination would serve more than 7 million customers with total client assets of $170 billion, according to E*Trade.

"The investment community has clearly stated a need for consolidation in this industry," Mitchell Caplan, E*Trade's chief executive, said in a statement. "The market's initial reaction validates its acceptance of the proposal we have put forth."

E*Trade said it first sent a letter to Ameritrade late last week with the aim of spurring merger talks. It was only after details of E*Trade's interest were leaked to the press this week that the company publicly confirmed it sought the merger.

E*Trade said it expects a deal to generate $650 million in revenue benefits and cost savings.


But Ameritrade, in a statement issued Thursday, indicated it did not share E*Trade's interest.

"Ameritrade is not for sale. We are confident in our management team and its strategy," Ameritrade founder and Chairman Joe Ricketts said.

Ameritrade, which has done seven mergers in the past four years, said it expects the industry to continue to consolidate. It said it would continue to explore strategic opportunities, but did not elaborate.

"We doubt any move by E*Trade to escalate the battle ... would be effective," Fox-Pitt, Kelton analysts said in a research report.

Ameritrade's "statement suggested that the company's leadership seeks to be a buyer, not seller," Fox-Pitt, Kelton said.

Media reports have said Omaha, Nebraska-based Ameritrade has held talks with TDWaterhouse Group parent Toronto-Dominion Bank about buying the Canadian company's New York online operation.

Toronto-Dominion said it would not comment on the speculation, but did not rule out parting with, or building on, its Waterhouse platform.

In an interview with Reuters late last week, Ameritrade chief operating officer J. Peter Ricketts was dismissive of E*Trade's business strategy, saying the brokerage was "trying to be all things to all people."

Analysts say it would be difficult for E*Trade to bypass Ameritrade's board and bring its takeover offer directly to shareholders since the Ricketts family controls 31.3 percent of the stock. Ricketts, meanwhile, has indicated he wants to increase his 30 percent stake in Ameritrade, according to The Wall Street Journal.

Under an earlier pact with the company, Ricketts is required to vote along with the majority of the Ameritrade board if the online brokerage firm decided to sell or merge, the newspaper said. His two sons, Thomas Ricketts and J. Peter Ricketts, also sit on the board.

Campbell Chaney, an analyst at Sanders Morris Harris in Houston, on Thursday wrote: "We do believe this could escalate into a conflict that will end with Ameritrade being aquired, possibly by E*Trade, possibly by someone else."

Shares of Ameritrade closed at $13.80, up 4 cents on the day on Nasdaq. E*Trade's stock shed 34 cents, or 2.75 percent, to end at $12.04 on the New York Stock Exchange.



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