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Charles Schwab to buy TD Ameritrade in $26 billion all-stock deal

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By Reuters
Charles Schwab to buy TD Ameritrade in $26 billion all-stock deal
FILE PHOTO: A TD Ameritrade sign glows at the entrance to a branch in the financial district in New York February 29, 2016. REUTERS/Brendan McDermid/File Photo   -   Copyright  Brendan McDermid(Reuters)

By C Nivedita

(Reuters) – Charles Schwab Corp <SCHW.N> will buy TD Ameritrade Holding Corp <AMTD.O> in an all-stock deal valued at $26 billion (20 billion pounds), the two largest U.S. discount brokerages said on Monday, as they try to fend off competition from newer rivals.

The deal is expected to be heavily scrutinized by regulators, and is a response to recent disruption in the industry, where nimbler startups like Menlo Park, California-based Robinhood are rapidly gaining market share by eliminating commissions on stock trades.

TD Ameritrade’s shares were up 2.8%, while Schwab was down 2.1% in premarket trade.

As part of the deal, expected to close in the second half of 2020, Ameritrade stockholders will get 1.0837 Schwab shares for every share held, or $52.23 based on Schwab’s Friday close.

The deal is expected to add 10%-15% to GAAPEPS and 15%-20% to operating cash EPS in the third year following the close of the deal, the companies said.

“Some of the expense synergies the combined firm expects to realise will come from elimination of overlapping and duplicative roles.”

Based on Schwab’s Friday close, the deal represents a premium of 26% to TD Ameritrade’s closing price on Wednesday, a day before CNBC reported the deal, citing sources. The news had sent TD Ameritrade’s shares surging as much as 25% on Thursday.

TD Ameritrade CEO Tim Hockey is due to step down in February. The companies said on Monday they will suspend the CEO search and named TD Ameritrade Chief Financial Officer Stephen Boyle as TD’s interim president and CEO.

Last week, CNBC reported the combined company is expected to be led by Schwab’s Chief Executive Officer Walt Bettinger.

The new combined entity would have assets of about $5 trillion.

Credit Suisse Securities (USA) was Schwab’s financial adviser, while PJT Partners LP and Sandler O’Neill + Partners LP advised TD Ameritrade.

(Additional reporting by Bharath Manjesh and Tamara Mathias; Editing by Shounak Dasgupta)