TD Ameritrade has just announced that the company is acquiring Scottrade for a total of $4 billion. The acquisition will result in substantial consolidation in the North American trading industry as TD Ameritrade is aiming to increase the scale of its retail business and adds about 500 physical locations to its branch network.
The deal is expected to the complete in two steps with the first one involving Scottrade Bank merging into TD Bank, North America for a cash payment of $1.3 billion. In addition, TD will also purchase $400 million worth of new common shares which amounts to about 11 million shares.
After the conclusion of the first phaser of the deal, TD Ameritrade will buy Scottrade Financial Services for $2.7 billion. The transaction will involve a $1.7 billion cash payment and $1.0 billion worth (28 million shares) of new common equity which will be issued to Scottrade shareholders.
TD Ameritrade & Scottrade deal structure. (Source: TD Ameritrade)
According to the firm, it is expecting to realize about $450 million in combined annual expense synergies, with opportunities for $300 million longer-term cost reduction. About 25 percent of the expense synergies are expected to be realized in the first year after the close of the deal with the remainder expected to be complete in the second year.
The Founder and CEO of Scottrade Rodger Riney will be appointed to the TD Ameritrade Board of Directors.
The transaction is expected to bring in substantial client assets to TD Ameritrade with over 2 million clients that have more than 3 million funded accounts. The consistent organic growth that Scottrade has been enjoying in recent years could add up to $170 billion worth of client assets to the books of TD.
The amount of daily average revenue trades (DARTs) generated by Scottrade clients is about 137,000, leading to a total for the two companies of about 600,000 DARTs.
Key metrics of Scottrade and TD Ameritrade. (Source: TD Ameritrade)
The deal confirms a Bloomberg report over the weekend that hinted at the acquisition.
Commenting on the announcement, the President and CEO of TD Ameritrade Tim Hockney stated, “We’ve found in Scottrade a partner with an equally-strong passion and a proven track record for delivering exceptional client experiences. 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.”
“We are confident we have found a great partner in TD Ameritrade, who shares our client-first focus. Joining forces will enable us to offer clients an expanded array of trading tools, enhanced education resources and advanced option capabilities with broader geographic reach. Together, we will be well-positioned to compete in today’s rapidly evolving financial services industry,” said Rodger Riney, Scottrade’s Founder and CEO.