Last week’s rumors were true, as Charles Schwab and TD Ameritrade today announced that they have entered into a definitive agreement for Schwab to acquire TD Ameritrade in an all-stock transaction valued at approximately $26 billion.
Under the agreement, TD Ameritrade stockholders will receive 1.0837 Schwab shares for each TD Ameritrade share, which represents a 17% premium over the 30-day volume weighted average price exchange ratio as of November 20, 2019.
“We have long respected TD Ameritrade since our early days pioneering the discount brokerage industry, and as a fellow advocate for investors and independent investment advisors,” said Schwab President and CEO Walt Bettinger, who will lead the combined company. “Together, we share a passion for breaking down barriers for investors and advisors through a combination of low cost, great service and technology.”
With this transaction, Bettinger said Schwab will capitalize on the unique opportunity to build a firm with the “soul of a challenger and the resources of a large financial services institution” that will be uniquely positioned to serve the investment, trading and wealth management needs of investors across every phase of their financial journeys.
The combination brings together two leading firms with similar histories of making investing more accessible to all. More than 40 years ago, Schwab and TD Ameritrade started out as alternatives to traditional Wall Street brokerages.
In a statement released by Schwab on Monday, it noted the two companies helped lead a revolution to become the preferred model for full-service investing among tens of millions of direct investors and the go-to providers of custodial and consulting services for thousands of independent investment advisors. “The firms’ mutual respect and complementary cultures will help Schwab successfully integrate TD Ameritrade into its future operations,” the statement said.
With today’s announcement, the TD Ameritrade Board of Directors has suspended its previously disclosed CEO search, naming Stephen Boyle, TD Ameritrade EVP and CFO, as the company’s interim President and CEO. Boyle will assume leadership of the company effective immediately, guiding its management team through its fiscal 2020 plan and the proposed integration with Schwab.
Prior TD Ameritrade CEO and President Tim Hockey announced back in July that he would be leaving the brokerage by February of 2020.
“Partnering with Schwab on this transformative opportunity makes the right strategic and financial sense for TD Ameritrade,” Boyle said. “We share a common history—a journey since 1975 that has made Wall Street more accessible and financial dreams more attainable for millions of Americans. Our associates are fiercely proud of that legacy and all that we have accomplished to make TD Ameritrade one of the premier firms in financial services.
“Now we look to join forces with a respected firm like Schwab that shares our relentless focus, and to do more than we could do apart,” Boyle continued. “Together, we can deliver the ultimate client experience for retail investors and independent registered investment advisors. We can continue to challenge the status quo, pooling our resources and expertise to transform lives—and investing—and deliver sustainable, long-term value to our many stakeholders.”
Bettinger added, “One of Chuck Schwab’s ambitions has always been to build a strong and independent Schwab that would be around to serve clients for many years in the future. We believe the combination of our two great companies positions us to be competing and winning in the investment services business for the long run—the very long run.”
Transaction details
The acquisition will add to Schwab approximately 12 million client accounts, $1.3 trillion in client assets, and approximately $5 billion in annual revenue.
The added scale is expected to result in lower operating expenses as a percentage of client assets (“EOCA”), help fund enhanced client experience capabilities, improve the company’s competitive position and further its financial success and diversification of revenue.
The resulting combined firm is expected to serve 24 million client accounts with more than $5 trillion in client assets; taken together, the two firms recently generated total annualized revenue and pre-tax profits of approximately $17 billion and $8 billion, respectively.
The Monday Schwab announcement added that the transaction creates significant strategic benefits for the combined organization and is expected to deliver attractive returns for the owners of both companies, while further improving the investing and trading experience of both Schwab and TD Ameritrade clients.
It allows Schwab to continue to add further scale on top of its organic growth, helping to drive sustainable, profitable growth and long-term value creation.
The transaction has been unanimously approved by the Boards of Directors of Schwab and TD Ameritrade, as well as the Strategic Development Committee of TD Ameritrade’s Board—a committee comprised solely of outside, independent directors that was established by the Board of Directors of TD Ameritrade to oversee and conduct the process and all negotiations concerning the transaction on behalf of the Board.
Post-closing, The Toronto-Dominion Bank (“TD Bank”), which currently holds approximately 43% of TD Ameritrade’s common stock, will have an estimated aggregate ownership position of approximately 13% in the combined company, with other TD Ameritrade stockholders and existing Schwab stockholders holding approximately 18% and 69%, respectively.
TD Bank’s voting stake will be capped at 9.9%, with the balance of its position held in a new, non-voting class of Schwab common stock. Additional details regarding stockholder matters, including upcoming votes, will be provided in the subsequent merger proxy materials.
The transaction is subject to customary closing conditions, including receipt of applicable regulatory approvals and approval by the stockholders of both companies. The parties expect the transaction to close in the second half of 2020, and integration efforts to begin immediately thereafter.
Integration process, new headquarters
The integration of the two firms is expected to take between 18 and 36 months, following the close of the transaction. Schwab has named Senior EVP and COO Joe Martinetto to oversee the integration initiative, assisted by a team of experts from both Schwab and TD Ameritrade.
As part of the integration process, the corporate headquarters of the combined company will eventually relocate to Schwab’s new $100 million campus in Westlake, Texas, about 23 miles north of downtown Fort Worth.
Both companies have a sizable presence in the Dallas-Fort Worth area. The approximately 1 million-square-foot Westlake campus could eventually house about 7,000 employees. This will allow the combined firm to take advantage of the central location of the new Schwab campus to serve as the hub of a network of Schwab branches and operations centers that span the entire U.S., and beyond. Any additional real estate decisions will be made over time as part of the integration process.
Schwab was founded in San Francisco and has maintained a longstanding commitment to the Bay Area, which will continue. A small percentage of roles may move from San Francisco to Westlake over time, either through relocation or attrition.
The vast majority of San Francisco-based roles, however, are not anticipated to be impacted by this decision. Schwab said it expects to continue hiring in San Francisco and retain a sizable corporate footprint in the city.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
