The previously noted surge in Monday merger announcements, which seek to take advantage of still cheap credit before yields rise, got its latest entrant moments ago when discount brokerage TD Ameritrade agreed to acquire peer Scottrade in a $4 billion cash and stock transaction. Per the press release, “The transaction combines two highly complementary organizations with long histories of helping millions of people invest in their financial futures. For TD Ameritrade, the transaction adds significant scale to its retail business, extends its leadership in trading, and more than quadruples the size of its branch network.”
Moments after the announcement, AMTD reported that it missed both consensus EPS est. of $0.38, reporting $0.35 in Q4, as well as revenues which were $829 million, below the est. $837.9 million, suggesting that organic growth in the sector may have peaked and explaining the urge to shift tactically to cheap debt-funded M&A.
TD Ameritrade, the biggest discount brokerage by trade executions, said it expected to realize about $450 million in combined annual expense synergies, and more than $300 million in additional longer-term opportunities once the deal closes.
As disclosed, the terms of the trade are as follows:
The transaction, which has been approved by the boards of directors of TD Ameritrade, TD Bank Group (TD) and Scottrade, will take place in two, concurrent steps. First, TD will purchase Scottrade Bank from Scottrade Financial Services, Inc. for $1.3 billion in cash consideration. Under the terms of the proposed acquisition, Scottrade Bank will merge with and into TD Bank, N.A., an indirect wholly-owned subsidiary of The Toronto-Dominion Bank. Additionally, TD will purchase $400 million in new common equity (11 million shares) from TD Ameritrade in connection with the proposed transaction, pursuant to its preemptive rights.
Then, immediately following that acquisition, TD Ameritrade will acquire Scottrade Financial Services, Inc., for $4 billion, or $2.7 billion net of the proceeds from the sale of Scottrade Bank. The $2.7 billion will be comprised of:
- $1.0 billion in new common equity (28 million shares) issued to Scottrade shareholders; and
- $1.7 billion in cash, which includes TD Ameritrade cash ($900 million), a new debt offering ($400 million), and the proceeds from the sale of 11 million shares to TD ($400 million)
Additionally, following the transaction’s close, Scottrade Founder and CEO Rodger Riney will be appointed to the TD Ameritrade Board of Directors.
On a pro forma basis, the combined company would look as follows:
Elsewhere, HFTs everywhere, but mostly at Citadel, are chomping at the bits for a first look at frontrunning all the newly aggregated retail order flow.