TD Ameritrade, Toronto-Dominion buy Scottrade for $4bn

Bloomberg

TD Ameritrade Holding Corp. and its largest stakeholder, Toronto-Dominion Bank, agreed to buy Scottrade Financial Services Inc. for $4 billion, combining two of the largest online brokerages while expanding the U.S. operations of Canada’s second-largest lender.
TD Ameritrade agreed to acquire Scottrade’s brokerage operations for about $2.7 billion. Toronto-Dominion, which owns about 42 percent of TD Ameritrade, will purchase Scottrade’s banking operations for $1.3 billion, adding to its US branch network that stretches from Maine to Florida.
The acquisition of Scottrade adds to a flurry of recent deals in an industry that’s facing pressure from lower trading volumes and sluggish revenue growth. E*Trade Financial Corp. bought Aperture New Holdings Inc., parent of the futures and options trading platform OptionsHouse, in a $725 million cash deal in July, and Ally Financial Inc. purchased TradeKing Group Inc. for about $275 million a month earlier.
Toronto-Dominion extends its US acquisition streak with this deal. The Toronto-based bank has spent more than $17 billion building a US branch network since 2005 and has sought to fortify its wealth management business since buying New York money manager Epoch Investment Partners in 2013 to attract more wealthy American clients. The lender has more recently focused on buying credit-card portfolios, though Chief Executive Officer Bharat Masrani said as recently as September that he’s still interested in “tuck-in acquisitions” and other U.S. assets if they make strategic sense.
TD Ameritrade, based in Omaha, Nebraska, has a market value of $19.5 billion. Closely held Scottrade, based in Town & Country, Missouri, had $1.04 billion of revenue in 2015, Wells Fargo & Co. analysts led by Christopher Harris said in a report this month. Online platforms are used by consumers, wealth advisers and other investors to trade securities outside of traditional brokerages. The brokerages have been squeezed in recent years amid competition from automated investment systems known as robo-advisers and a shift away from stock picking and day-trading toward passive vehicles.
TD Ameritrade was created in January 2006 when the former Ameritrade Holding Corp. bought Toronto-Dominion’s U.S. network of independent advisers, TD Waterhouse. In exchange, the bank received a large stake in the combined firm. The companies have maintained close business ties. Last year, Tim Hockey left the Toronto-based lender, where he ran Canadian banking and wealth management, and became TD Ameritrade’s CEO.
Beating Estimates
For the past four quarters, TD Ameritrade has reported earnings that have surpassed analysts’ estimates. The Scottrade deal would add to Toronto-Dominion’s earnings per share in the low-single digits and to its U.S. base of earnings, Robert Sedran, an analyst with Canadian Imperial Bank of Commerce, said last week. TD Ameritrade is scheduled to report fiscal fourth-quarter results on Tuesday.
Scottrade Chief Executive Officer, Rodger Riney, who co-founded the discount brokerage in 1980, will join the TD Ameritrade board as part of the deal, said the people with knowledge of the matter. Riney’s 75 percent stake is valued at $2.2 billion, according to the Bloomberg Billionaires Index.
The company announced last year that he was undergoing treatment for multiple myeloma, a form of blood cancer.
Scottrade’s business is profitable, but less than its peers and the company’s revenue hasn’t grown since 2014. These challenges, along with Riney’s health, could influence the decision to sell, the Wells Fargo analysts said earlier this month.

Wealthy Americans
Toronto-Dominion has spent more than $17 billion building a branch network from Maine to Florida since 2005 and has sought to build up its wealth management business since buying New York money manager Epoch Investment Partners in 2013, looking to lure more wealthy American clients.
The lender is open to buying more assets, such as credit-card loans or “tuck-in” takeovers for its existing U.S. bank, CEO Bharat Masrani said in an interview late last year. He reiterated that interest at a conference in September, adding “we’re not running around looking for deals because we don’t have to.”