By Angela Xia, Adit Rajeev, Karthik Neelamegam (University of Cambridge), Orlando Poraqi, Iulian Paval (Bocconi University)
Overview of the Deal:
Acquirer: Charles Schwab
Target: TD Ameritrade
Transaction Value: $26bn
Announcement Date: 25th November 2019
Acquirer Advisors: Credit Suisse
Target Advisors: PJT Partners, Sandler O’Neill and Partners
Charles Schwab plans to acquire brokerage rival TD Ameritrade in an all-stock deal valued at $26 billion. Ameritrade shareholders will receive 1.0837 Schwab shares for every share held, which is a 17% premium over the stock’s 30-day average price before the deal announcement broke. Schwab’s current shareholders will own 69% and TD Ameritrade’s current shareholders will own 18% of the new entity.
The merger is estimated to close in the 2020 H2 and will create a mammoth in the wealth management space with the firm managing more than $5 trillion in client assets and serving more than 24 million clients.
Company Details (Acquirer – Charles Schwab)
The Charles Schwab Corporation is one of the largest banks and stock brokerage firms in the USA. It offers an electronic trading platform to trade securities, such as common stocks, preferred stocks, futures contracts, ETFs, options, mutual funds and fixed-income investments. Additionally, the company provides margin lending, cash management services, and advisory services through registered investment advisers.
- Founded in 1971
- Headquartered in San Francisco, USA
- CEO: Walter W Bettinger II
- Number of employees: ~19,500
-Market Cap: $60.3 billion -EV: $-6.12 billion
-TTM Revenue: $10.7 billion -LTM EBITDA: $4.94 billion
-EV/Revenue: -0.57x -EV/EBITDA: -1.24x
Company Details (Target – TD Ameritrade)
TD Ameritrade is a broker that offers an electronic trading platform to trade securities, such as common stocks, preferred stocks, futures contracts, exchange-traded funds, options, cryptocurrency, mutual funds, and fixed-income investments. The company also provides margin lending and cash management services.
- Founded in 1971
- Headquartered in Omaha, USA
- CEO: Tim Hockey
- Number of employees: 9,183
-Market Cap: $26.6 billion -EV: $23.2 billion
-TTM Revenue: $5.9 billion -LTM EBITDA: $2.93 billion
-EV/Revenue: 3.95x -EV/EBITDA: 7.92x
Projections and Assumptions
In October, Schwab removed commissions for online trades to compete with modern brokers like Robinhood, which pressurised rivals, including TD Ameritrade, to follow suit. Ameritrade’s quarterly revenue is expected to fall by about $230 million, which could severely impact the income sources of the company, especially as it is not as large or diversified as Schwab. This merger would thus provide Ameritrade some protection, while also benefitting Schwab as explained below.