Schwab nears deal to buy TD Ameritrade in industry overhaul
Charles Schwab Corp. is nearing a deal to buy TD Ameritrade Holding Corp, according to a person familiar with the matter, reshaping a beleaguered online brokerage sector that’s seen fierce competition from new entrants amid price pressure and alternative ways to invest for clients.
TD Ameritrade jumped about 17% at 9:39 a.m. in New York trading, the most since 2008. Shares of Schwab were up 8.1%.
A transaction could be announced as early as Thursday, the person said, asking not to be identified because discussions are private.
Scwhab’s purchase would create a $5 trillion titan that would be better positioned to weather the challenges facing today’s brokerages, which include price conscious customers and a low interest rate environment.
A deal between the two companies “would expand Schwab’s roster of active traders and solidify its leading position serving independent advisers,” wrote David Ritter, an analyst at Bloomberg Intelligence, in a note on Thursday.
The deal would be worth $26 billion, Fox Business reported earlier, citing unidentified people familiar with the situation.
An acquisition would come at a time of transition for TD Ameritrade. The Omaha-based brokerage said in a surprise announcement in July that Chief Executive Officer Tim Hockey would leave no later than the end of February 2020, rekindling questions of whether it would pursue a deal. Hockey denied that his departure had anything to do with M&A at the time.
It would be the second time Schwab has made a radical move in the space of two months, after it announced zero fees for trades last month.
The move to eliminate commissions swept away a revenue stream and rekindled speculation that online brokerages might have to cut deals to survive the increased industry pressure. TD Ameritrade relied more on commissions than some competitors, drawing 36% of its net revenue from commissions in 2018, compared to 7% at Schwab.
The companies didn’t immediately respond to emails and phone calls seeking comment.
Schwab last month announced plans to eliminate commissions for U.S. stocks, exchange traded funds and options. The move forced other brokerages to follow suit and triggered a slump in the shares of such firms, with TD Ameritrade among the hardest hit.
TD Ameritrade has lost 11% since then, valuing the company at $22 billion. Schwab gained 7% in the same period, giving it a stock market value of $57 billion.
Todd Rosenbluth, director of ETF research at CFRA Research, said that a tie-up of the two firms could help address the burn of zero commissions with increased scale.
“It would reduce the likelihood that investors bounce around,” he said. “They’d have a go-to destination.”
He added that the same principle would apply for independent advisers, who increasingly choose between the two firms for clearing and trading services. “There’s scale benefits for them to provide,” he said.
CNBC also reported earlier the firms were in talks, with a deal likely as soon as today.