Schwab-TD Ameritrade Merger Has 75% Chance: Morningstar Report

As legal and regulatory concerns stay front and center for those leading the planned $26 billion merger of Charles Schwab and TD Ameritrade, one analyst says the deal should move forward. 

“We believe the merger is more likely than not to occur and currently incorporate a 75% probability of its going through in our valuation model,” said Michael Wong, Morningstar’s director of equity research for financial services, in a recent report. 

A big hurdle could be removed Thursday when TD Ameritrade shareholders vote to support or reject the deal. If two-thirds vote in favor, it would supersede a lawsuit against the transaction that argues Schwab became an “interested stockholder,” as defined by a Delaware law, in its merger target before its board approved and went public with the news of the deal. 

Schwab disagrees with this argument but says if a court in Delaware rules against it, TD Ameritrade cannot merge with it for three years since the time it “became an interested shareholder.”

This legal challenge, though, can be superseded if “the business combination is approved by the TD Ameritrade board of directors and authorized by the TD Ameritrade stockholders by the affirmative vote of at least 66 2/3% of the outstanding TD Ameritrade common stock,” Schwab said in a recent filing. 

Separately, Schwab said it updated and amended a prospectus and proxy statement in order to put to rest eight other lawsuits concerning an “incomplete and misleading registration statement.” 

“TD Ameritrade and Schwab believe that no further disclosure is required to supplement the definitive joint proxy statement/prospectus under applicable law,” the two firms said. 

“However, to avoid the risk that the lawsuits may delay or otherwise affect the consummation of the merger and to minimize the expense and distraction of defending such actions, TD Ameritrade wishes to voluntarily make the supplemental disclosures related to the merger,” the amended proxy stated. 

Antitrust Matters 

Morningstar’s Wong says he doesn’t have great antitrust concerns when it comes to uniting the two retail online brokerage businesses, since “there are many online brokerage companies and the space is very competitive.”

When it comes to the RIA business, though, the combined firm might have more than a 40% market share by assets, he points out.