Charles Schwab Corp. said it would acquire TD Ameritrade Holding Corp. in a multibillion-dollar deal that will reshape the retail brokerage business.
Schwab agreed to acquire TD Ameritrade in an all-stock transaction the companies say is valued at about $26 billion, a 17% premium over the 30-day average share price as of Nov. 20, the day before news of the talks emerged. TD Ameritrade stockholders will receive 1.0837 Schwab shares for each TD Ameritrade share, under the terms of the transaction. The equity value of the deal is $28.3 billion based on Schwab’s closing price of $48.20 on Nov. 22.
The announcement of the deal valued comes after news of the possible acquisition broke on Thursday, sending up shares of both firms. The acquisition of TD Ameritrade capitalizes on the industry tumult that Schwab created in October by cutting commissions to zero. Now Schwab, America’s original discount broker, will have even more sway over the sector it pioneered nearly a half-century ago.
The tie-up creates a mega-firm with $5 trillion in assets — a Goliath that may attract the attention of antitrust regulators, analysts say. Smaller brokerages like E*Trade Financial Corp. will have to contend with a much more formidable competitor.
Shares of TD Ameritrade, an Omaha-based brokerage that’s partly owned by Toronto-Dominion Bank, fell less than 1% on Friday after surging 17% the day before as investors learned of a possible deal. Schwab rose less than 1% Friday after gaining 7.3% the prior day.
Schwab’s move to zero commissions forced other brokerages to follow suit and swept away an important revenue stream. Analysts speculated that online brokerages might have to cut deals to survive the increased industry pressure.
TD Ameritrade has relied more on commissions than some competitors, drawing 36% of its net revenue from commissions in 2018, compared to 7% at Schwab.Founder Charles Schwab hinted he was open to deal-making in an interview with Bloomberg Radio in October.
“I don’t know whether we’ll be successful in that pursuit, but in the industry you’re going to see more consolidation, more firms getting together,” he said. “You just have to have that scale and volume.”
If the deal goes through, the combined company will have unparalleled clout as top custody service providers to independent financial advisers. That may give authorities pause, Keefe, Bruyette & Woods analyst Kyle Voigt wrote Thursday. He estimates Schwab has about a 50% market share of registered investment adviser custody assets, while TD Ameritrade may have as much as 20%.
The acquisition comes after TD Ameritrade announced in July that Chief Executive Officer Tim Hockey would leave early next year. Hockey denied at the time that his departure had anything to do with a potential deal.