TD Ameritrade to Buy Rival Scottrade for $4B

The deal continues a wave of consolidation among discount brokerages, which are facing declining trading volumes and low revenue growth.
Matthew HellerOctober 24, 2016
TD Ameritrade to Buy Rival Scottrade for $4B

TD Ameritrade said Monday it had agreed to acquire rival Scottrade Financial Services for $4 billion in another deal that reflects the difficult environment for discount brokerages.

The combined company will have more than 10 million client accounts and nearly $1 trillion in assets, with TD Ameritrade betting the larger scale will enable it to offer a more competitive service to retail investors, who have been shying away from equities amid market volatility.

“TD Ameritrade getting Scottrade’s assets increases its scale and puts them in a much better place to deal with any type of pricing competition,” Michael Wong, an analyst with researcher Morningstar, told The Wall Street Journal.

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The merger will occur in two stages. Toronto-Dominion Bank, which owns a large stake in TD Ameritrade, will initially purchase Scottrade’s banking business for $1.3 billion in cash. Immediately following that acquisition, TD Ameritrade will acquire privately-held Scottrade for $4 billion, or $2.7 billion after the proceeds from the sale of Scottrade Bank, in a cash and stock deal.

“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,” TD Ameritrade CEO Tim Hockey said in a news release.

As the WSJ reports, the once high-flying discount brokerage industry “has been under pressure from declining trading volumes and low revenue growth as more investors ditch buying individual stocks to buy and hold low-cost passive funds that track the market rather than beat it.”

Firms are also coping with pricing competition from full-service brokerages and other online competitors, including automated robo advisers. TD Ameritrade said Monday that its average client trades per day declined 7% in the three months through September.

“The weak environment is driving a broad industry consolidation,” The New York Times noted, with Ally Financial acquiring TradeKing Group for about $275 million in April and E*Trade Financial buying the parent company of OptionsHouse for $725 million in July.

In trading Monday, TD Ameritrade shares fell 3.3% to $35.84.