The complex transaction will start with TD Bank paying $1.3 billion for Scottrade Bank, which is equivalent to the lender's tangible book value. Omaha, Neb.-based TD Ameritrade will then buy the rest of Scottrade Financial Services, of St Louis, for a net $2.7 billion, of which $1 billion will be in TD Ameritrade stock. It is also issuing another $400 million of new shares to TD Bank to raise cash to fund the deal. That will leave TD Bank with a stake of 41.4% in its brokerage affiliate. TD Ameritrade will also take on $400 million of new debt to pay for Scottrade.
The transaction is the latest of several recent deals between online brokers including E*Trade Financial's (ETFC - Get Report) $725 million purchase last month of OptionsHouse owner Aperture New Holdings.
Scottrade's brokerage business will add $170 billion in client assets to TD Ameritrade's $774 billion of client assets and give it the largest physical network of any online broker, with 500 branches, the buyer said. TD Ameritrade added that the purchase will widen its geographical scope and boost earnings per share by between 12% and 15% in years two and three on a GAAP basis, or between 15% and 20% on an adjusted basis.
TD Bank said the transactions will boost its own earnings in the first full year but slice 30 basis points from its common equity Tier One capital ratio.
"This announcement allows TD and TD Ameritrade to further strengthen our relationship." said TD Bank president and CEO Bharat Masrani in a statement. "We are pleased to see TD Ameritrade expand its business and solidify its leadership position in the market."
His TD Ameritrade counterpart, Tim Hockey, said the deal "will allow us to leverage our strengths and increase our scale, further accelerate our asset gathering capabilities and introduce our award-winning line-up of trading tools, products and education services to millions of new investors."
Scottrade founder, CEO and 75% owner Rodger Riney will receive a seat on TD Ameritrade board when the deal closes, which is expected by Sept. 30 next year.
Toronto-Dominion Bank closed in New York on Friday little changed at $45.03, giving the group a market value of $83.6 billion. TD Americorp was worth $19.5 billion after its stock on Friday closed up 1.2% at $37.08.