San Francisco-based Charles Schwab (NYSE: SCHW) has announced that it is buying TD Ameritrade Holding Corp. (NASDAQ: AMTD), the Omaha-based online brokerage firm, for about $26 billion in an all-stock deal. The deal is expected to close in the second half of 2020, pending regulatory approval. The integration of the two firms is expected to take 18 months to 36 months after the deal is closed.
According to the terms of the agreement, Ameritrade stockholders will receive 1.0837 Schwab shares for every share held. That figure represents a 17 percent premium over the stock’s 30-day average price before news of the deal emerged. Schwab’s current shareholders will own 69 percent of the combined company, while TD Ameritrade’s existing stockholders will own 18 percent. Canada’s Toronto-Dominion Bank, which owns 43 percent of Ameritrade’s common stock, will retain 13 percent in the combined company, but its voting stake will be capped at 9.9 percent.
The merging of the two biggest publicly traded discount brokers will double Schwab’s brokerage account base to about 24 million clients and add $1.3 trillion in assets. The companies are predicting combined annualized revenue of $17 billion, with pretax profits coming in at $8 billion. Though the firms will control less than 20 percent of the brokerage and bank deposit market, they will hold over a third of the registered investment advisors (RIAs) custody market.
Schwab said the combined company’s headquarters will eventually relocate to Schwab’s new campus in Westlake, Texas. The company is expecting $1.6 billion in integration spending over three years after closing. The companies have a substantial amount of overlapping back-office operations and vendor costs, so after integrating operations, they are expecting about $1.8 to $2 billion in cost savings annually.
TD Securities and J.P. Morgan served as financial advisors to TD Ameritrade and Simpson Thacher & Bartlett LLP served as legal advisor. Credit Suisse served as financial advisor to Charles Schwab and Davis Polk & Wardwell served as legal advisor. After news of the acquisition broke, Schwab shares rose 8 percent and TD Ameritrade’s stock increased 16 percent. The companies now have market caps of about $57.5 billion and $22.4 billion, respectively.