Buyout Talk Boosts Ameritrade

Over the past few years, the demand for traditional online trading has diminished. Many brokers have cut prices on trades in order to keep customers. But investors are now looking for advice-driven services that can help them maximize their returns over the long term.

TD Ameritrade has acknowledged that it needs to expand beyond mere trading. It has turned its attention toward attracting "mass affluent" investors -- those with $100,000 to $1 million of investable assets.

Last year the company merged with TD Bank's U.S. retail brokerage, TD Waterhouse USA. Just last week it finally completed the conversion of former TD Waterhouse clients.

"The challenge for this company long term is really shifting from being an online broker catering to that active trader to really having a value-oriented product and service geared towards long-term investors," says Seth Dadds, an analyst at Garp Research & Securities in Baltimore. "The first big step in that was this TD Waterhouse acquisition, but the challenge is being able to put these pieces together and really coming out with something that appeals to that category and is able take share from competitors."

Dadds does not believe that TD Ameritrade is in a position to be bought out right now.

"These are good businesses to be in," Dadds says. "You still have this kind of secular trend where money is moving out of the big brokerage firms that can't service these smaller accounts profitability. That's really where the E*Trades and the Schwabs and the TD Ameritrades -- if they can line the pieces up together -- have a very good opportunity because it is a growing field."

He rates TD Ameritrade stock buy and owns shares of the company.

One possible buyer could be Schwab, which is gearing up to complete the sale of wealth manager U.S. Trust to Bank of America(BAC) for $3.3 billion. Schwab has been quiet about how it plans to use the proceeds.

Wall Street has been rife with talk that Schwab could pay the money out as a one-time dividend. But Capone says the company could also use the dough to buy TD Ameritrade.

There is also the possibility that TD Bank, which has a one-third stake in TD Ameritrade, could buy the rest of the online broker. Last month, the Canadian financial services giant bought in its New England commercial banking franchise, TD Banknorth.

"It's a pretty reasonable speculation" that Toronto Dominion could buy the broker outright, says Capone.

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