Ameritrade Denies It's on Block, Counter to Online Broker Trend

Online brokerage Ameritrade (AMTD) took down the "for sale" sign. At least for today.

J. Joe Ricketts, Ameritrade's chairman and co-chief executive, who still owns more than one-half of the $3.6 billion company, apparently isn't going to retire to his Wyoming ranch quite yet. He's always been adamant about not selling out just for the sake of doing so, and despite one racy Financial Times report to the contrary, he says that's still the plan.

Despite Ricketts' midday denial that his firm is on the block, the Ameritrade boss may need all of that will of steel if he hopes to keep the company out of the consolidation trend racing through the electronic trading business. As rivals such as Schwab (SCH) and E*Trade (EGRP) make acquisitions that diversify and globalize their businesses, Ameritrade and others may find mergers the best way to compete.

So far this year, competitor Charles Schwab has bought both blue-blood private banker U.S. Trust and daytrading shop CyberCorp and, with a little help from shareholder Softbank, daytrading firm Tradescape grabbed the upstart electronic trading system MarketXT.

Among the top 10 online brokerages, only Ameritrade, Datek Online and National Discount Brokers(NDB) are focused so closely on the pure online discount brokerage business.

As these companies try to expand to growing online markets abroad, the need for bulk only becomes more apparent.

Ricketts' will notwithstanding, every company has its price, says Greg Smith, an analyst with Chase H&Q, which hasn't done any underwriting for Ameritrade. "I do see [Ameritrade] probably, or potentially, becoming part of a larger organization. Companies in this business need capital. To support growth and advertising they need capital," Smith explains.

Keeping Up Is Hard to Do

Unlike some competitors who recently dipped into the capital markets, loss-making Ameritrade may need capital sooner rather than later. After raising a couple of hundred million dollars last year through a convertible bond offering, Ameritrade's Ricketts said earlier this year that the company probably would tap into its lucrative stake in Knight/Trimark Group (NITE) for some more funding.

Still, with the online trading business doing as well as it is -- volume growth is expected to be running at 30% to 40% during recent months -- there's no immediate push to do any big deals right now.

The hundreds of millions that Ameritrade and competitors like E*Trade will spend this year on advertising to acquire customers seem, if not reasonable, then plausible, given exponential growth. And that may be contributing to delays in the consolidation that many expect from the more than 100 players in the online broker business.

"[Ameritrade], market conditions willing, can continue to thrive as a stand-alone company. At the same time, it would seem it would be a target for others because of its narrow focus," says Matthew Vetto, an analyst for Salomon Smith Barney, which hasn't done any underwriting for Ameritrade. "It's a pretty easy way to plug in a brokerage piece."

Vetto upgraded Ameritrade on Tuesday to a buy from neutral and set a 12-month target price of 30.

Short Squeeze Stumbles

Ameritrade's stock movement Wednesday appeared about as clear-cut as the Financial Times report that sparked the speculation that Ameritrade was for sale in the first place.

Based on a headline that read "Ameritrade awaits a buyer," investors wanted to believe that Ameritrade, with its 700,000 customers and down-in-the-dumps stock, was in play. With nearly half of Ameritrade's 43 million shares on the open market held in short positions, it's easy to see why hopes for a short squeeze were high.

The stock rose in premarket trading from the 20 1/2 it had closed at Tuesday, but doubt lingered. It opened up a few percentage points before drifting lower and ending fractionally down on the day.

About midday, word finally came from Ameritrade. The story simply wasn't true. Ricketts' quote in the Financial Times -- "what we would like to do is form some sort of arrangement, whether it be a joint venture or a sale, in order to expand our company around the world" -- is, according to Ameritrade's later statement, not exactly the situation right now.

The firm's statement says it's "not up for sale, is not being approached with any offers to buy the company and is not attempting to sell the company."

The overseas alliance strategy that has been in place for more than a year, and which so far has yielded cross-border trading agreements with Deutsche Bank unit Bank 24 and French brokerage Cortal, is the one Ameritrade wants to stick with, he said.

He didn't forget to throw in, though, that CEO catch-all.

"While we have an obligation to consider options that would deliver the best long-term value to our shareholders, we believe our best option at the present time is to maintain our very successful course."

>To order reprints of this article, click here: Reprints