TD Ameritrade Holding Corp. and its largest stakeholder, Toronto-Dominion Bank, are close to a deal to buy online brokerage Scottrade Financial Services Inc. for $4 billion, according to people with knowledge of the matter.
TD Ameritrade would acquire Scottrade’s brokerage operations for about $2.7 billion in cash and stock, while Toronto-Dominion would purchase Scottrade’s banking operations for $1.3 billion in cash, the people said, asking not to be identified because the talks aren’t public. The takeover may be announced as soon as Monday before markets open in North America, the people said.
The transaction would combine two of the largest online brokerages, an industry under pressure from lower trading volumes and sluggish revenue growth. Such platforms are used by consumers, wealth advisers and other investors to trade securities outside of traditional brokerages. Bloomberg reported last month that Scottrade, based in Town & Country, Missouri, was working with an adviser to explore a sale. The St. Louis Business Journal reported the pending agreement on Saturday.
The acquisition of Scottrade extends a flurry of consolidation in the industry. In a $725 million cash deal last month, E*Trade Financial Corp. bought Aperture New Holdings Inc., parent company of the futures and options trading platform OptionsHouse. Meanwhile, Ally Financial Inc. bought TradeKing Group Inc. for about $275 million in June.
Spokeswomen for Toronto-Dominion Bank and Omaha, Nebraska-based TD Ameritrade declined to comment Sunday, and a Scottrade representative didn’t respond to messages sent outside of normal business hours.
Toronto-Dominion, Canada’s second-biggest bank by assets, owns about 42 percent of TD Ameritrade, qualifying it as a non-bank subsidiary under U.S. regulations. TD Ameritrade has a market value of $19.5 billion. Closely held Scottrade had $1.04 billion of revenue in 2015, Wells Fargo & Co. analysts led by Christopher Harris wrote in a report this month.
The brokerages have been squeezed in recent years amid competition from automated investment systems known as robo-advisers and a shift away from stock-picking and day-trading toward passive vehicles.
Still, their shares have surged following the U.K.’s vote in late June to leave the European Union. TD Ameritrade has jumped 39 percent since June 27, hitting an 11-month high on Friday, while E*Trade and Charles Schwab Corp. both have advanced about 35 percent, outpacing the 13 percent gain for the 64-company S&P 500 Financials Index.
TD Ameritrade reported an average of 425,000 client trades per day in August, down 21 percent from a year earlier. E*Trade said its comparable key industry statistic fell 20 percent in August to 143,831.
For the past four quarters, TD Ameritrade has reported earnings that have surpassed analysts’ estimates. The Scottrade deal would add to Toronto-Dominion’s earnings per share in the low-single digits and to its U.S. base of earnings, Robert Sedran, an analyst with Canadian Imperial Bank of Commerce, said last week. TD Ameritrade is scheduled to report fiscal fourth-quarter results on Tuesday.
Scottrade Chief Executive Officer, Rodger Riney, who co-founded the discount brokerage in 1980, will join the TD Ameritrade board as part of the deal, said the people with knowledge of the matter. Riney’s 75 percent stake is valued at $2.2 billion, according to the Bloomberg Billionaires Index. The company announced last year that he was undergoing treatment for multiple myeloma, a form of blood cancer.
Scottrade’s business is profitable, but less than its peers and the company’s revenue hasn’t grown since 2014. These challenges, along with Riney’s health, could influence the decision to sell, the Wells Fargo analysts said earlier this month.
Toronto-Dominion has spent more than $17 billion building a branch network from Maine to Florida since 2005 and has sought to build up its wealth management business since buying New York money manager Epoch Investment Partners in 2013, looking to lure more wealthy American clients.
The lender is open to buying more assets, such as credit-card loans or “tuck-in” takeovers for its existing U.S. bank, CEO Bharat Masrani said in an interview late last year. He reiterated that interest at a conference in September, adding “we’re not running around looking for deals because we don’t have to.”
TD Ameritrade was created in January 2006, when the former Ameritrade Holding Corp. bought Toronto-Dominion’s U.S. network of independent advisers, TD Waterhouse. In exchange, the bank received a large stake in the combined firm.
The companies have maintained close business ties. Last year, Tim Hockey left the Toronto-based lender, where he ran Canadian banking and wealth management, and became TD Ameritrade’s CEO.