Ameritrade's Rich Ransom

In a conference call, Moglia said in merging with TD Waterhouse, Ameritrade gets a physical presence on the ground by acquiring a big network of branches. The Omaha-based brokerage also gets access to a major bank, something it had sorely lacked.

The merger comes at a time of an all out price-war in the online brokerage business with rivals slashing trading costs in order to attract customers and drive trading. Unlike the golden years of the late 1990s, the online brokerage business has become a much more difficult place for numerous firms to survive.

Analysts have been predicting for some time that consolidation would eventually come to the industry. The Ameritrade/TD Waterhouse deal is likely to lead to feverish talk of other deals.

In fact, even though it was a loser in the bidding war for Ameritrade, shares of E*Trade rose 80 cents, or 6%, to $13.71 on the news. The deal also could pressure on Charles Schwab(SCH Quote), the nation's largest discount brokerage to pull off its own deal.

Ironically, a potential deal last year between E*Trade and TD Waterhouse faltered over issues of which company would control the brokerage.

"Don't assume consolidation is over for the industry and that it's over for Ameritrade," said Moglia.

In the online brokerage sector, Ameritrade has been one of the main acquirers. Two years ago, Ameritrade acquired Datek, a brokerage favored by many day traders, in a deal valued at $1.3 billion. In that acquisition, Ameritrade bested rival bids from E*Trade and TD Waterhouse.

Before Datek, Ameritrade acquired National Disount Brokers in 2001.

Meanwhile, in a key sweetener designed to distract investors from a reported $17.50-a-share bid by E*Trade, Ameritrade shareholders will get a $6 special dividend worth about $2.4 billion. The payout will be funded through excess cash, borrowing and a contribution from TD Bank.