Activists Fire Up Ameritrade

Updated from 11:47 a.m.

The online brokers are back in business.

TD Ameritrade (AMTD Quote) and rival E*Trade Financial(ETFC Quote) soared Wednesday after activist investors took a big stake in Ameritrade and pushed the company to sell itself.

The Omaha, Neb., company said in a regulatory filing late Tuesday that hedge funds Jana Partners and S.A.C. Capital took an 8.4% stake in the firm. The funds said they "wish to see TD Ameritrade pursue a business combination with one of its industry peers," namely E*Trade or Charles Schwab(SCHW Quote).

The move set off a rally in brokers TD Ameritrade, which rose 94 cents to $20.89, and E*Trade, which rose $1.54 to $25.41. Online asset manager Schwab, which said it isn't interested in a deal, saw its stock fall 27 cents to $21.78.

Ameritrade said in the filing that it is focused on its organic growth strategy but regularly reviews its strategy and would consider a deal "at the right time and if it can reach agreement for the right strategic fit." The company said it has had and expects to continue to have talks. An E*Trade spokeswoman says the firm does not comment on market speculation.

Observers have long speculated that the major online firms would link up as consolidation continues in the brokerage sector. Just last week, Wachovia (WB Quote) agreed to pay $6.8 billion for regional broker A.G. Edwards (AGE Quote).

"This is a group that we thought probably would consolidate at some point, and that's why we have exposure to it," says Tim Ghriskey, co-founder of Solaris Group and head of Solaris Asset Management. Solaris owns positions in E*Trade.