Schwab's OptionsXpress Buy Could Be the First of Many: Analysts
"There are many smaller options players that are privately held and then there are firms like TradeStation (TRAD) and FXCM (FXCM) or GAIN Capital Holdings (GCAP) that have received a pop in share price on the assumption that they could also be takeout targets," said Morningstar analyst Michael Wong.
On Monday GAIN Capital closed up eight percent, TradeStation was up four percent and FXCM was up almost two percent.
Wong said that retail investors have become more sophisticated and are now frequently using options and the acquisition of OptionsXpress is logical because it fills in that gap for Schwab. He added that any of the smaller companies in the options sector may be targets of TD Ameritrade (AMTD), but would not likely fit in with the larger brokerages.Other analysts such as Sandler O'Neill'sRichard Repetto countered that an acquisition of these smaller companies is unlikely. "This is a onetime deal, and Schwab bought a company with a specific capability. It is something those other firms don't have," Repetto said. Under the terms of the agreement, OptionsXpress stockholders will receive 1.02 shares of Schwab stock for each share of OptionsXpress stock. Based on Schwab's closing stock price as of March 18, 2011, the transaction values each OptionsXpress share at $17.91. This means, Schwab is paying 10 times EBITDA and eight times 2012 revenue. " The deal price the acquisition price was pretty reasonable and Schwab's stock was undervalued. Perhaps if they had paid more in cash it may have been better for Schwab shareholders," said Wong. Doug Sipkin of Ticonderoga Securities said in a note that excluding the $55 million in restructuring the deal could be modestly accretive, brining in $80 million pre-tax or about four cents Schwab estimates that annually the combined organizations would have generated net revenues of $4.479 billion in 2010.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV