Smart Money Sells Ameritrade

With Ameritrade's(AMTD Quote) biggest shareholders cashing in some chips, many are forced to wonder if the stock is topping out.

After a 133% run-up this year and numerous downgrades from analysts in recent weeks, Ameritrade shareholders on Monday filed to sell more than 44 million shares. The company also announced that it would buy back 7.5 million shares from the sellers.

"This confirms our view that the stock is trading above fair value," said Michael Ford-Taggart, an analyst at Morningstar. "Why else would they be getting out of the stock?"

Omaha, Neb.-based Ameritrade said Bain Capital, TA Associates and SilverLake Partners will sell about 40.9 million of their 127 million shares. Ameritrade fell 4% on the news, or 61 cents, to $13.10.

"Over time, you'll see them take their entire stake down to zero, because they're venture capitalists and they'll want to get their money out to put in other projects," Ford-Taggart said. "But they can't do it all at once."

Bain, TA Associates and SilverLake acquired a large stake in Ameritrade when the company purchased Datek in April last year. The three firms, which owned a majority interest in Datek, sold the company to Ameritrade for $1.3 billion. Monday's sale raises roughly $535 million, covering the lion's share of their estimated $700 million investment in both Datek and Island in December 2000 -- a gutsy move at a time of serious bubble deflation. (Island was sold to Instinet(INGP Quote) for about $500 million in June 2002.)

Despite the decline in share price Monday, Matt Snowling, an analyst at Friedman Billings Ramsey, said the move "should eliminate some of the uncertainty surrounding the exit strategy of the private equity groups."

Merrill Lynch analyst Colin Clark said these investors still will own 20% of Ameritrade after the transaction, down from 29% before. And he raised his 2004 estimate to 55 cents from 54 cents, saying AmeriTrade's stock repurchase should be slightly accretive to earnings next year.