Omaha, Neb.-based TD Ameritrade Holding Corp. (NASDAQ: AMTD) said it agreed to acquire privately-held St. Louis, Mo.-based discount broker Scottrade Financial Services Inc. in a cash and stock deal valued at $4 billion.

“Since founding Scottrade in 1980, our mission has been to lower the cost of investing and trading while treating clients fairly and honestly, said Scottrade founder, owner and CEO, Rodger Riney, who after the closing is expected to become the second-largest individual shareholder of TD Ameritrade, after its billionaire founder, and former chairman and CEO, Joe Ricketts.

“This combination will allow us to leverage our strengths and increase our scale, further accelerate our asset gathering capabilities and introduce our award-winning line-up of trading tools, products and education services to millions of new investors,” said Tim Hockey, TD Ameritrade president and CEO.

The deal adds significant scale to TD Ameritrade’s retail business, extends its leadership in trading, and more than quadruples the size of its branch network.

The company expects to realize approximately $450 million in combined annual expense synergies, and more than $300 million in additional longer-term opportunities. The first 25 percent of the expense synergies are expected to be realized in Year 1 post-close and the remainder realized in Year 2. Furthermore, the transaction is expected to generate double-digit EPS accretion post-conversion, it says.

The transaction, which has been approved by the boards of directors of TD Ameritrade, TD Bank Group (TD) and Scottrade, will take place in two, concurrent steps.

First, TD will purchase Scottrade Bank from Scottrade Financial Services for $1.3 billion in cash. Scottrade Bank will merge with and into TD Bank NA, a subsidiary of the Toronto-Dominion Bank. Additionally, TD will purchase $400 million in new common equity (11 million shares) from TD Ameritrade.

Then, TD Ameritrade will acquire Scottrade Financial Services for $4 billion, or $2.7 billion net of the proceeds from the sale of Scottrade Bank.

The $2.7 billion will be comprised of $1 billion in new common equity (28 million shares) issued to Scottrade shareholders, and
$1.7 billion in cash, which includes TD Ameritrade cash ($900 million), a new debt offering ($400 million), and the proceeds from the sale of 11 million shares to TD ($400 million).

The deal is subject to regulatory approval and customary closing conditions, and is expected to to close by Sept. 30, 2017, with an anticipated clearing conversion to TD Ameritrade systems in 2018.

Barclays Capital Inc. is serving as financial advisor to TD Ameritrade, and Wachtell, Lipton, Rosen & Katz is serving as legal advisor to TD Ameritrade. Goldman, Sachs & Co. is serving as financial advisor to Scottrade, and Sullivan & Cromwell is serving as legal advisor to Scottrade.

Photo: Rodger Riney, Founder and CEO, Scottrade.

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