In $4 Billion Deal, TD Ameritrade Acquires Scottrade
OMAHA, Neb. – Online brokerage TD Ameritrade is buying Scottrade in a $4 billion cash and stock deal that would significantly expand its branch network at a time when many financial firms are expanding their robo-advisor programs.
Under the two-step deal announced Monday, TD Bank Group will first buy Scottrade Bank from Scottrade Financial Services Inc. for $1.3 billion in cash, and Scottrade Bank will be integrated into TD Bank.
Next, TD Ameritrade will buy Scottrade Financial Services for $2.7 billion in cash and stock. Part of this purchase will be funded by selling 11 million shares to TD Bank, which will continue to control 41% of TD Ameritrade shares.
TD Ameritrade said the transaction adds significant scale to its retail business and more than quadruples the size of its approximately 100-branch network.
TD Ameritrade CEO Tim Hockey said the branches should help it better serve its customers and expand into more markets, although the company will likely close about 150 of the 600 branches it will have after the ‘OK.
“Financial decisions are very important to people and they like to talk with someone they know and can talk to in their community,” Hockey said.
TD Ameritrade projects approximately $450 million in combined annual expense savings.
Together, TD Ameritrade and Scottrade had $944 billion in total client assets and 600,000 average client transactions per day for the year ended September 30, on a pro forma basis.
“It gives us extraordinary scale,” Hockey said. “With this scale, those investments in technology will be spread across more customers.”
CFRA Research analyst Cathy Seifert lowered her rating on TD Ameritrade shares from “Hold” to “Buy,” but she said the deal should provide a boost.
“We view AMTD’s planned $4 billion purchase of Scottrade Holdings positively as it should contribute to AMTD’s slower revenue growth,” Seifert said.
Jefferies analyst Daniel Fannon said Scottrade is a good strategic fit with TD Ameritrade, and the deal makes sense given the potential cost savings.
Scottrade Founder and CEO Rodger Riney will join TD Ameritrade’s Board of Directors.
The deal is expected to close by September 30, 2017.
In addition to the Scottrade deal, TD Ameritrade said fourth-quarter profit fell 13% to $185 million, or 35 cents per share, as trading slowed.
The company generates revenue from a combination of transaction fees, asset-based fees and investor education fees. Officials believe the addition of Scottrade clients will increase revenue with more transactions and more opportunities to offer investment advice.
TD Ameritrade’s fourth-quarter earnings fell short of the 38 cents a share expected by analysts polled by Zacks Investment Research.
TD Ameritrade said it expects to generate earnings per share between $1.50 and $1.80 next year, excluding the deal with Scottrade.
Shares of TD Ameritrade Holding Corp. fell $1.62, or 4.37%, to settle at $35.46. Its shares are up more than 6% in the past year.