Charles Schwab has agreed to acquire longtime rival TD Ameritrade for $26 billion in a major consolidation of the discount brokerage industry amid a bruising pricing war.

The all-stock transaction announced Monday would create what one analyst called a “true behemoth in the retail brokerage space,” serving 24 million client accounts with more than $5 trillion in assets and second only to Fidelity.

Schwab and Ameritrade are both pioneers of discount brokerage services but both firms recently announced they would eliminate fees for trades of stocks and exchange-traded funds. Consolidation makes sense in a zero-fee environment, enabling Schwab to cut costs, stream new revenue opportunities, and improve the platform for clients, analysts said.

Given the large amount of overlapping back-office operations and vendor costs, Schwab is expecting about $1.8 billion to $2 billion in annual cost savings, about 20% of the combined company’s cost base.

“Schwab is aiming to solidify its place in the established order of the brokerage world as the industry faces a challenge: making more money without charging steep fees to customers managing their wealth,” The New York Times said.

Under the terms of the deal, Ameritrade stockholders will receive 1.0837 Schwab shares for every share held, a 17% premium over the stock’s 30-day undisturbed average price. Schwab shares rose 2.3% to $49.31 in trading Monday while Ameritrade’s shares jumped 7.6% to $51.78.

“We believe the combination of our two great companies positions us to be competing and winning in the investment services business for the long run — the very long run,” Schwab CEO Walt Bettinger said in a news release.

Ameritrade, which was founded in 1975, serves 12 million client accounts totaling approximately $1.3 trillion in assets and provides custodial services to more than 7,000 registered investment advisors. Like Schwab, it has been facing pricing pressures from so-called roboadvisers and a fresh wave of start-ups.

“The move to zero commissions in the industry has put several firms in a really tough spot,” said Alois Pirker, research director at Aite Group, which tracks the financial services industry.

Photo by Smith Collection/Gado/Getty Images

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