In early news on Monday October 24 TD Ameritrade Holding Corp announced that it would by the privately held Scottrade Financial Services Inc. in a cash and stock deal holding a value of roughly $4Billion. TD Ameritrade is anticipating to realize roughly $450 million in combined annual expense synergies and more than $300 Million in longer-term opportunities once the deal closes. The discount brokerage is the largest by trade executions.
Scottrade has roughly 3,700 employees and about 500 branches across the United States. Credit agency Fitch said in March that Scottrade was attempting to move away from focusing on transactional trading and moving more toward a fee-based investment management revenue model.
Fee based accounts tend to result in more reliable income as compared to commission based trading accounts that increase and decrease with the clients’ interest in the markets. With wealth managers in the US cutting fees, they are relying more on technology to give advice and to reduce the maximum amounts that a client can hold in a brokerage account. This is in anticipation of the new rule governing how retirement savers are advised.
The transaction will take place in two parts according to reports. TD will end up paying $2.7 billion for Scottrade’s brokerage business. They will also acquire Scottrade’s Banking division for $1.3Billion. The breakdown of the $2.7Billion entails $1Billino in new common TD Ameritrade shares and $1.7Billion in cash. This all comes at a time when many discount brokerages are facing weaker than expected trading volumes and slow revenue growth.
Barclays is the financial advisor to TD Ameritrade and Wachtell, Lipton, Rosen & Katz is their legal advisor. Scottrade is being advised by Goldman Sachs with Sullivan & Cromwell acting as the legal counsel.