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DLJ Takes Direct Action for Online Broker Unit

Amy Olmstead

Seeking to cash in on the Internet stock frenzy, Donaldson Lufkin & Jenrette (DLJ Quote) filed to sell shares that will track the performance of its highly regarded online brokerage unit, DLJdirect.

In documents filed Wednesday with the Securities and Exchange Commission, DLJ said it will issue shares linked to the performance of DLJdirect, which Piper Jaffray recently ranked as the No. 7 online broker by trades. The shares, to trade on the New York Stock Exchange under symbol DIR, won't give holders voting rights at DLJdirect, which was rated the No. 1 online broker in the latest issue of Barron's.

DLJ is underwriting the offering, which will cut DLJ's current 100% stake in the unit by an undetermined amount, and DLJdirect is performing the Internet distribution. The New York-based company didn't specify the offering size, price range or other details of the plan. A call to DLJ seeking comment wasn't immediately returned.

DLJ for much of this year has been contemplating taking DJLdirect public. While DLJ has a fat wallet, DLJdirect's spending hasn't always kept pace with that of top online brokers such as E*Trade (EGRP Quote), which has spent millions, for example, on marketing. The offering may allow DLJdirect to pursue such a course.

According to the prospectus, DLJdirect will use the proceeds from the offering on marketing and international expansion, to repay a note issued to an affiliate (identified in the press release as DLJ) and for other purposes.

DLJ expects the DLJdirect tracking stock to reflect the performance of DLJdirect and has separated the financial reporting of the two. Holders of DLJdirect common stock will be DLJ common shareholders, and the DLJ board will govern DLJdirect as well.

In the filing, DLJdirect disclosed revenue of $117.9 million for 1998, up 75% from $67.2 million in 1997. The online brokerage firm reported net income of $1.5 million, reversing a year-ago loss of $3.6 million. Average daily trades for the year jumped 87% to 11,400 from 6,100 a year earlier, and to 14,200 trades during the fourth quarter. Customer assets were $8.9 billion at the end of 1998, nearly doubling the year-ago level of $4.6 billion.

DLJdirect is pursuing high-net-worth online traders, targeting those with assets above $1 million. It banks on the reputation and name of Donaldson Lufkin & Jenrette. In the prospectus, it says it aims to continue to expand its customer base, products and services, grow internationally and expand its role as an Internet-based distributor of IPOs.